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How Toyota Steered Clear of the Chip Shortage Mess

The auto industry could lose $60 billion in sales this year because of the scarcity of semiconductors. Toyota’s exhaustive monitoring of small suppliers led it to stockpile early.
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Illustration: Inkee Wang for Bloomberg Businessweek

When the Tohoku earthquake triggered a tsunami that struck Japan’s northeastern coastline in March 2011, killing more than 15,000 people, Toyota Motor Corp. spent half a year struggling to get back on its feet. One of the biggest hurdles: Tokyo-based Renesas Electronics Corp., a major producer of chips for the automotive industry, saw its main plant knocked offline for three months after the tsunami, sparking a supply squeeze that rippled through the industry.

As Toyota scrambled to repair its facilities and procure missing parts, it also pored over its supply chain to identify the most at-risk items in the hope of preventing a similar disruption in the future. The automaker came up with a list of about 1,500 parts it deemed necessary to secure alternatives for or to stockpile. The company also put in place an intricate system to monitor the vast network of suppliers that produce those items—and the smaller companies those suppliers buy materials from—to develop an early-warning system for shortages.