global production system, risk management, Toyota recalls, quality management, automotive industry, overseas suppliers
PROS AND CONS OF GLOBAL PRODUCTION SYSTEMS
It was shocking to see Toyota, known for legendary quality control, begin a series of record recalls at the end of 2009 that ultimately involved nearly 10 million vehicles. After first blaming floor mats for stuck accelerator pedals, it ultimately found a defective part in the pedals. With the main cause of the defect blamed on the side effects of relocating the company's production base overseas, there is an increasing wariness about the inherent risks of a global production system.
Manufacturers from industrialized countries led the adoption of global production systems in the 1980s. They hoped to capture advantages such as stronger price competitiveness and adaptability to local markets and, at the same time, avoid trade barriers and foreign-exchange losses. US companies transformed themselves into specialized units by restructuring during the decade; they expanded overseas production by relocating operations throughout the world. Japanese companies also began to increase foreign direct investment (FDI), and their overseas production went into full swing as the 1985 Plaza Accord led to the sharp appreciation of the Japanese yen.
However, the increasingly popular global production model also has revealed weaknesses. As production base expands overseas and supply lines become more diverse, it is difficult to transplant tacit knowledge in overseas production sites and to secure efficiency in inventory and quality control. Also, there is a growing risk of technology being leaked. Toyota sought to do everything possible to ensure quality control at its overseas plants, including transferring domestic plants' tacit knowledge to train local employees using multimedia, such as video and illustrations. However, weak points in quality control still emerged.
Korean companies are not immune to a crisis like Toyota's. Korean automakers began global production operations in earnest in 2000, and the proportion of overseas production soared from 3.4 percent in 2001 to 38.1 percent in 2008. Therefore, while strengthening competitiveness through their worldwide manufacturing network, Korean companies also need systematic analysis and proactive measures against accompanying risks such as quality deterioration and leakage of core technologies.
RISKS OF GLOBAL PRODUCTION
Risks can originate from either a company's own overseas plants (internal) or parts suppliers in foreign countries (external). Risks can also be sorted according to problems with the product itself (product level), problems caused by related companies (company level), or problems caused by foreign governments (government level). The table below shows the risks related to global production systems by scope and origin.
Risk 1 Poor Quality of Overseas Plants
At overseas plants, which have physical, cultural and linguistic gaps with headquarters, it is difficult to find and nurture a skilled workforce and implant a company's complete system of quality control, especially when overseas production expands rapidly. Toyota steadily increased its overseas productions since 2000 in order to offset deteriorating profitability caused by a persistently strong yen and trade conflicts. From 2000 to 2009, Toyota's overseas production increased by more than 10 percent annually, higher than that of Nissan and Honda. Amid its swelling scale, Toyota's production system was not completely transmitted to overseas plants, which later manifested itself in quality control problems and Toyota's massive recalls.
Along with the swift increases in overseas production, Toyota's extreme pursuit of cost reduction exacerbated quality control problems. In 2000, Toyota launched a radical cost-cutting program known as Construction of Cost Competitiveness …