Mark Adams, Vice President of purchasing at Toyota Europe, discusses the car maker’s supply chain in the UK and Europe and the company’s approach to leadership and risk assessment.

Roberto Priolo: At the SMMT International Automotive Summit, in June, you said that parts of the UK automotive supply chain could be repatriated if UK suppliers got leaner. Can you expand on this?

Mark Adams: The lower tiers of the supply chain could have a higher degree of localisation if certain things changed. I believe the lower down the supply chain you go, the more you find that the purchasing organisations in many companies are smaller and maybe less sophisticated in their practice. At some levels, you get down to small firms that have one single person identified as the company buyer. It becomes critical for potential suppliers to those companies to be cost and price competitive at first quotation. Smaller UK companies need to address this, slim down and maybe start operating with the resources that are outside of their comfort zone.

There is currently a resurgence in the fortunes of car makers in the UK, and that will benefit supply chains. We must make sure that business conditions are favourable in Britain, such that suppliers that are already based there will remain and maybe even some of those who exited in the past may considering reentering.

RP: 90% of the value of cars Toyota produces for the European market (excluding engines and transmissions) is sourced within Europe. Where is the UK placed in that equation?

MA: The situation for the UK has changed over time. The UK Burnaston plant was our first investment in Europe, and at that time around 70% of the value of cars built at Burnaston for the European market was sourced in the UK. Since then we have opened plants in Turkey, France and Poland. Logistics costs mean that proximity to the plant becomes very important, and the result today is that each car assembly plant has more than 50% of the value sourced very locally in its home country. Over time, the UK has been found not to be the optimum location for exporting to other locations (it is also expensive to ship parts over the Channel). From 70% in the mid-1990s when we only had production in the UK, we have around 30% of our spend in the UK (which amounts to about €1bn a year).

RP: What are the advantages of a localised supply chain?

MA: Localisation provides a natural hedge against global currency fluctuation. Above all, it enables a strong relationship between the customer and the supplier at all levels, which in turn helps ensuring quality assurance, on-time delivery and collaboration on the factory floor to achieve perfection in project execution. More importantly, that relationship with local suppliers gives us access to European technology, otherwise not accessible to a Japanese-headquartered company like Toyota.

RP: The last two years have been difficult for Toyota, with the recall crisis and the Japanese tsunami disrupting global supply chains. How did the company ensure these wouldn’t become even bigger disasters?

MA: After the recall crisis, we had to emphasise the fact that quality was still a core part of the Toyota brand. We made some concrete organisational changes. After being criticised because decision making was slow and centralised in Japan, we appointed chief quality officers in each of the regions outside of Japan. At a very practical, local level, we established supply quality committees, and that was to connect our manufacturing plants, our quality function and purchasing to address any negative trends we saw in supply quality performance.

The combination of the recall crisis, the financial crisis and then the tsunami saw our sales volumes and revenues drop. We had to make our own Toyota organisation in Europe leaner and resize the organisation down, trying to keep fixed cost per car in control despite the temporary dramatic drop in volumes we experienced.

In terms of the recovery from the tsunami, we have fully recovered now, but that’s only due to the huge amount of hard work and sacrifice by people in Japan.

RP: What lessons did the company learn from this experience?

MA: What is apparent looking back is that global Toyota did not know who was in the supply chain at all levels. We knew intimately our first tier suppliers, but we realised that we also needed to know who supplies who at every level. We need to know where the convergent points are: there are unique suppliers of unique things, and we have to identify those and then make a risk assessment whether we need to diversify supply in order to lessen the risks that such convergence points in the supply chain represent.

We also learned the power of going to the site, where things are happening. We call it genchi gembutsu in Japanese, which means going and see for ourselves and making the right decisions based on firsthand information.

Finally, we experienced that sometimes going completely lean represents a degree of risk. In some occasions, where we identify single sources or convergence points of supply, we need the old fashioned protection of stock to make sure that production of cars can continue even in the event of a disaster in the supply chain.

RP: What about the Toyota Production System?

MA: TPS is still the driver of the way we make cars and of our beliefs in the virtues of a lean supply chain, but sometimes pure TPS needs to be sprinkled with an additional element of common sense, such as in the decision to deploy safety stock.

RP: This issue of LMJ focuses on lean leadership. What is Toyota’s approach to leadership?

MA: The Toyota leadership model is changing. To lead in the image of TMC Japan is no longer considered to be correct in Europe. Today we need to lead with a European entrepreneurial spirit, which on the one hand respects the history and the guiding principles of Toyota but also challenges tradition, embraces the modern world and breaks down any taboos that otherwise might prevent us from achieving our goals. Above all, we must develop our people, so that the identity of Toyota and its leadership continues in the future generations.

RP: What’s next for Toyota?

MA: We will continue using environmental technology and leadership to further define the identity of Toyota in the future. Not just in the products, but also in the way we produce cars. We are piloting sustainability throughout the way that we design, manufacture and distribute cars, with specific manufacturing plants acredited as “Sustainable plants”, a picture mirrored by our sustainable dealerships.