brand challenges

Toyota, Honda Among Global Brands Worried About Thai Flooding

Posted by Dale Buss on November 4, 2011 05:31 PM

It's nightmarish to consider from a corporate and brand perspective, but the record flooding in Thailand that has endangered lives is also wrenching apart supply chains for both Toyota and Honda, and could become a major disruption to their business. The fear is that the leading Japanese brands do not pass "Go Back to Market" and instead proceed right back to "Supply Chain Jail."

Not even eight months after the March 11 tsunami and earthquake devastated the big Japanese brands' supply lines stretching from Japan and around the world, company executives are confessing that they still don't know quite how badly they'll be nicked by the flooding. The waters didn't reach Toyota's own plants, for example, but they did badly affect suppliers in Thailand that ship electronic components for Toyota vehicles to the automaker's plants around the world.

Already, Toyota has cut back on overtime and Saturday work at its U.S. facilities through at least next week (and is sticking to a plan to open a factory in Indonesia), and Honda has conceded that up to half its North American production ultimately could be affected.

"So far no one knows the extent" of the possible effects, Brian Smith, CMO of the Lexus brand, told brandchannel. "We don't know yet" if the outcome could be as bad as what happened in March, he conceded. "In the early days this kind of thing is very, very difficult to assess. It feels a lot like [March] to me. But I don't think it's the same." Toyota North American manufacturing spokesman Javier Moreno also told us that "it's too early to tell what kind of impact we're looking at."

The global auto industry isn't the only sector impacted by the flooding in Thailand, of course. Computer makers are facing a laptop shortage and disruption to cloud services, while companies such as Nikon have been issuing updates on the damage to their operations.

At Honda and Toyota, no one is saying definitively that either brand will avoid the kind of cataclysmic supply problems that they endured during the second and third quarters, and from which their vehicle pipelines are just now recovering. Both Honda and Toyota executives have been signalling that their inventories now are such that they and their dealers can do business as "normal" in the U.S. market again. But Mother Nature seems to have rolled another bad pair of dice for both companies, and the toll on their sales and brands again could become significant.

Moreno said, however, that one positive aspect of the new situation is that Toyota has second and third sources of many of the parts that are produced for it by affected Thai companies; "single-sourcing" of parts, on the other hand, was a huge problem beginning in March. The Toyota spokesman also noted that the company learned some important lessons from dealing with the aftermath of the natural disaster in Japan.

For one thing, Toyota began immediately to curb overtime at its North American plants even before knowing the full extent of its supply-chain disruption from the Thailand floods. "We're curtailing overtime already to conserve parts," Moreno said. "The idea is to not stop production and keep the line going. We hope that will pay off as we go through this."

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