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Japanese automaker supply chain contracts

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seatbeltSupply chain contracts offered among Japanese carmakers are an area where additional attention is needed in regards to both quality and safety are concerned. These two aspects should be at the top of the list when offering such contracts. Mark Johnson is one such supply chain expert who has studied the factors which Japanese car makers concentrate on when offering these contracts and has found them lacking where quality and safety are concerned.

Japanese auto makers include Toyota, Nissan, Honda and Mazda all of which have had to resort to car recalls to the tune of a total of 3.4 million. These auto makers all receive air bags from Takata Corp who has been supplying faulty airbags which has been known to catch fire and injure occupants of the vehicle. These problems first surfaced in October 2011 with repeated occurrences since then.

Auto companies have an obligation to put quality and safety in top priority when offering contracts for procurement of auto parts and should put their focus on procurement of quality parts over price and costs involved in ordering these parts from their supply chains.

Dr Johnson, Associate Professor of Operations Management at Warwick Business School said, “Perhaps the answer to this is to put quality and safety first when negotiating contracts for safety critical parts. As more and more firms focus on what they are good at – their core competences – then their suppliers will be trusted for greater proportions of the design and manufacturing of sub-systems and components. This comes with a cost, and that is the loss of control of their supply chains as they cede responsibility to their suppliers while procuring parts at a low price.”

He added, “It is unlikely that carmakers will ever bring certain things – airbags being a prime example – in-house, it’s simply not in their interest as costs are already competitive and they need to find new ways of managing the relationship so that they can have visibility of any issues. This means moving to contracts based on relationships – which give transparency into operations – as opposed to those where price is the be-all and end-all. Takata have paid the price in a reduced share price and will no doubt find themselves under pressure when contracts are negotiated. Toyota, and others, will pay the price through an expensive, and public, recall. The age of the affected vehicles suggests that this is something that was known previously and the carmakers have been slow to respond. The blame has been firmly placed on Takata, who saw a slump in their share price.Swift resolution of a fault can be beneficial, after all firms can be viewed in a positive light if they act swiftly and decisively when customers perceive there to be a risk.”