Japanese carmakers have to put quality and safety first in supply chain contracts

Toyota, Honda, Nissan and Mazda have had to recall 3.4 million vehicles across the world because of faulty airbags supplied by Takata Corp, which are at risk of catching fire or injuring passengers.

It has been reported that the problem was first raised in October 2011 and the issue again shows how risky huge global supply chains are.

Dr Johnson, Associate Professor of Operations Management at Warwick Business School, says firms should not just look at cost when considering their supply chain.
“Perhaps the answer to this is to put quality and safety first when negotiating contracts for safety critical parts,” said Dr Johnson.

“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.

“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.”

But Dr Johnson believes if the car manufacturers had acted quicker they could have lessened the damage to their brand.

“The age of the affected vehicles suggests that this is something that was known previously and the carmakers have been slow to respond,” said Dr Johnson.
“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.”

Notes:
Warwick Business School is the largest department of the University of Warwick and the UK’s fastest rising business school according the Financial Times. WBS is triple accredited by the leading global business education associations and was the first in the UK to attain this accreditation. Offering the full portfolio of business education courses, from undergraduate through to MBAs, and with a strong Doctoral Programme, WBS is the complete business school. Its Dean, Professor Mark Taylor, is among the most highly-cited scholars in the world and was previously Managing Director at BlackRock, the world’s largest asset manager.

Mark Johnson joined WBS as an Associate Professor in the Operations Management Group after a post at Cranfield School of Management. Whilst at Cranfield School of Management, Mark was theme leader for the Servitization theme of the University’s EPSRC funded Innovative Manufacturing Research Centre (IMRC). He holds a Doctorate (EngD) and MSc from the University of Warwick. Mark is also the Assistant Dean for Executive Education. His current research is in the area of Service Networks. This examines the appropriate supply chain strategies, configurations and their overarching relationships for companies that provide business solutions. 

Dr Johnson’s research has been published in Research Policy, the International Journal of Operations and Production Management, the International Journal of Production Economics and the International Journal of Physical Distribution and Logistics Management amongst others, and is forthcoming in the Journal of Supply Chain Management. Dr Johnson has worked with a number of companies in his research and education. These include: Rolls-Royce, BAE Systems, Atos Origin, PA Consulting, UK Trade and Investment, DB Schenker, British American Tobacco, HP Enterprise Services, Jaguar Land Rover, GKN Aerospace and GVA Grimley. He teaches a range of subjects at undergraduate, postgraduate and executive level. These include: Operations Management, Supply Chain Management and managing inter-organizational relationships.