An article published in the Wall Street Journal last week, Toyota Hits Back at Yen, (paid subscription or metered free view may be required) outlines a dramatic shift in Toyota’s strategies for manufacturing of autos within Japan.  While domestic auto rivals continue to move more production external to Japan.  Toyota is drawing a line in the sand to maintain competitive production domestically while not closing any plants. Toyota is reported as currently suffering from low or non-existent profit for vehicles exported to other regions.

Toyota has declared that it will meet the challenge of a weaker yen by instituting a more flexible manufacturing output strategy.  The company will re-double its cost-cutting efforts domestically by slimming-down production lines in order to make a profit on smaller-scale production volumes.  In essence, the auto maker is trading-off overall domestic production capacity for shorter, more compact and flexible production lines.  As an example, capacity on engine production lines will be decreased by upwards of 50 percent in order to adapt to quicker responses to product or model demand.  The company will, in essence, move away from a strategy of specialized automation for mass production in favor of smaller batch production machinery on shorter, more flexible assembly lines.

The implications to suppliers and supply chain networks within Japan can be substantial. Supply Chain Matters and traditional business media has featured previous commentary regarding the impacts of Japan’s currency woes on domestic producers.  Nissan in autos, Toshiba, Panasonic and Sony in electronics, among others, have instituted plans to shift more production outside of Japan in order to maintain profitability goals.  In November of last year, The Economist pointed out that as major production shifts away from Japan have a negative impact on the industry supply chains internal to Japan, as product volume, skills and innovation move or are leveraged within other geographies. The Economist further noted that three-quarters of Japanese-owned production facilities external to Japan, were at the same technical level as Japanese domestic plants, thus eliminating the advantage of the “mother-factory” concept.

Toyota has launched a bold manufacturing and cost-cutting initiative to demonstrate its commitment to a continued domestic production presence.  The consequent success of this strategy, as well as the further business and production impacts to its domestic suppliers is yet to be played out. Readers should keep a keen-eye to these developments since we  could witness yet another chapter of the Toyota Production System.

Bob Ferrari