Case StudyThe Toyota Group and the Aisin Fire

49

Toshihiro Nistiigtichi isprofessor of managementat Hitotsubashi Universitv.Institute of InnovatiotiResearch.

Alexandte Beaudet isresearch adviser.Transnational ConsjltingDepartment. MitsubishiRasearcb Instiltile.

Toshihiro Nishiguchi -Alexandre Baaudet

Together, suppli-ers organized tosai^e Toyota froma devastatingcrisis thatthreatened tohalt operationsfor weeks.

TIK-JLipune.•^c' iiUJtlcl ot k)nt;-tci[ii colkiho-lutivL- piirtiKTshipM hL-twcL-ii iimi.^ aiultlK-ii .sLippllLTS IKIS attiLK'tL-ti nuieli att^'ii-tion tiDin husinu.s-s IVM.':UV1IL'I^ and piULti-tioncis. Sc\'cr;il U,S. LIIKI l-iiiiopcan mito-liiLikeis hiivc- :UtL'nipt(.-cl to cstiihli.^li sliiiikirpartnt'isliips ut their cn\n. .seeking tniL'cluLL* tliL'ir sLijiiilicT Ixi.sc and cLiltixatefL'lation.ship.s uitli their he.'it sLippliei^.' Asa re.sult. the cafly invnhcnient of .suppli-ers in prodLict-dcvclopnicnt and cost-rctluciion etTort.s i,s lieconiing .standardpractice in the aiitonKMiw iiidu.stn" andbeyond.-

A recent cri.si.s involving Toytna and its.supplier network suj ge.st.s. ho\ve\er. that

the Japanese nindcl ^ or at least tlie'Ibyota niodel — iii\'olve,s more than a ,setof loni^-lerni relation.ship.s between a lirni;inti a tew .select suppliers. As the Toyotagi'oLip'.s cc)llab(.;rati\'e re.spon.se to the .sud-den tiestriiction of a key .supplier's plantsuggests, the relationships among a firms.suppliers are equally important. Moregenerally, a complex mix of institutionspermits self-organization during titnes ofcrisis with little need for a leaders directcontrol,' These strong relationships amongmany firms along with the steady butlargei)' in\'isiblc control of a leader pro-mote tlexible and coordinated tesponsesto crises. In addition, they foster long-term competiti\'eness through decentral-

Sloan Management ReviewFall19gB

Nishigucfai • Beaudet

A fire at one of Aisin Seiki's plants

threatened to halt Toyota-group

operations for weeks.

izetl. groLijiwide efforts to solve day-to-day problemsand improve |')erformatice.

50 On 1-ebruaiy 1. 1W7. a fire at one of .-Vi.sin Seiki'splants threatened to halt Toyota-group tjperaiions forweeks. Aisin Seiki, one of Toyota's tnost tru.sted sup-pliet.s, was the sole source for proportioning valves(or I'-valve.s, in the industry parlance), a small butcruciLil brake-related part used in all Toyota \'ehicles.'IJecause of Toyota's and Aisin's dedication to theprinciples tjf just-in-time (Jl'l') production, only twoor thtee tlays' worth of .stock was on hand, A shut-down of Toyota-group plants (including those of se\-eral hundred suppliers) seemed una\'oidable.

'I'he timing could not have been worse. Toyota plantswere operating at full capacity with le\'els of over-time and use of temporaty workers unheard of inyears, in anticijiation of a last-minuie boom in auto-tnobile sales prior to the 2 percent consumption salestax increase slated ftir April 1. K\'eiy day lost meantpotentially huge and irretrievable losses in .sales andprofits for Toyota and rehited firms/

Vet. remarkably, di.saster was averted, and assemblyplants were reopened after only two days of shut-down. The recoveiy was accomplished through animmediate and largely self-organized effort by firms.mostly from within but also from outside tiie Toyotagroup, to set up alternative production sites outsideof Aisiti." Within days, firms with little experiencewith P-\^alves were manufacturing and deli\'ering theparts to Aisin. v\here they were a.s.sembled and in-S|-)ected before being sent to Toyota's and otherclietits' assembly plants. The collaborative effort, whichwhich in\'ol\'ed more than 200 firtiis (of which ap-j^roxiinately .sixty-two took direct responsihilitytor P-valve production), was orchestrated with vetylimited direct control from Toyota and with no hag-gling o\-er technical proprietary rights or financialcom|5ensation.

The Toyota group detiionstrated its cohesion andresiliency at a time when many observer.s were dis-cussing the weakening of traditional ties among

group members. Based on data collected through in-depth inten'iews v\ith key player.s in the incident, wede.scribc what took place during the Aisin Seiki crisisand how itidividiial firms came together to orches-trate the recoverv' effort." We believe that the episodeholds lessons for busine.sses adopting the Japatiesemodel of long-term supplier partnerships as v\'ell asfor businesses moving away from that model. Ofcourse, competition for future contracts anti the pres-sure to maintain their I'cjiutations tnotivatetl the sup-pliers to cooperate with each other. Nevertheless, weargue, it was the various capabilities developetlthrough institutionalizetl problem-soh'ing activitieswithin the Toyota group that ensuretl the effective-ness Lind rapitiity of the suppliers" collaborative effort.For businesses of niLiny kintls, the capabilities de\'el-opeti through comtiiitted partnerships CLUI enhancecompetitivene.s.s. tlriving participants to responti effec-tively to emergencies Lind to pursue continuousimprt^vement on a daily bLisis.""

The Aisin Seiki CrisisAt -1:18 a,m. on Saturday. I'ebruaiy 1. 1W7. a fireerupted in Aisin's Kariyii plant number one. Hy H:S2a.m., the lines dedicated to P-VLil\'es and to two otherbrake-related parts (clutch master cylinders Lind tan-dem master cylinders) were almost completelv'destroyed. Lilong with special-purpose machinei">' andtirills that could take months lo reorder. The neartiestrLiction ofthe P-valve lines was potentially disas-trous for Toyota; nearly all of its vehicles used AisinP-valves manLiI'Lictured exclusively at the KLiriya phint.w liich turneti out 32.SOO I*-VLih'es a day for Toyotaand other Toyota-group assemblers such as Mino LintlDailiat.su as well as for Mit.subishi, Suzuki, and Isu/.u.

LLsed in all vehicles, P-vaI\es cotitrol pressute on iVLirbrakes to help pre\'ent skidding. About the size of a[lack of cigarettes, the part is mass-producetl usingdedicated tcinsfer lines, which keeps costs down LintlensLires high productivity and reliLibility, AlthoughstrLictLirally simple Lind inexpensive, costing onlybetv\'een ¥770 and Vl. iOO apiece, P-valves rec]Liirecomplex, high-precision mac'hining lo ensure the reli-ability anti durability essential to the SLifety of Linybrake sj'stem.

That Aisin was the sole supplier of this small hiit crit-ical pan was surprising to many in jLipan. To reducethe risk of the \'eiy kinti oi' tiisruption it was now-confronting, ToyotLi had increased parLillel sourcing.

Nuhiguchi • Beiudet Sloan Management ReviewFall 1999

Its relationship with Aisin v\as distinctive, however,''Aisin was one of Toyota's ck)sest sujipliers in sLiles.personnel, and financial linkages: its outstanding co.st,quality, and delivety performLince record matie it tiif-ficult to replace.'"

Toyt)ia sLidtienly found itself in crisis. As Li resiilt ofJIT operations, only one day's worth of I'-valveswere in immediLite stock. PredictLibly, oti Monckiy.Februar\" 3. when assetiibly lines v\ere still riinning.Toyota announced the following days' shuttlownof twenty of its thiny assembly lines (including thoseof Toyota's contrLict assemblers); from TiiesdLiy.Februarv- -i, to WednesdLiy, I-ebruLity S. pnicticLilly allof ToyotLi's and most of its rekitetl firms' plants v\'eredtised. bringing to a halt almost the entire Toyoiagroup." As a re.sult, hundreds t)f tiered .suppliers whowoiiltl liLive to wait for the reopening of their clients'plants to resume deliveries wei'e Lilso Littectetl, aswere local electricity, gas, anti transponation compa-nies. Such is the fragility of JIT: a surprise event CLinpLiralyze entire networks and even industrles.'-

How could alternative P-valve produc-tion sites be organized and the deliveryof the required 32,500 P-valves a day heresumed so quickly?

Indeed. Toyoui was facing one of the worst crises inIts hi,stoiy.'" Hut on Tuesthiy, February i, only threedays after the fire, the first alternative vokime P-valves (as oppo.sed to prototype I -valv es tliLit liLitlbeen delivered one tiay earlier) were rtilling off teni-porarv" lines hastily set Lip by an Aisin sLipplier,KoritSLi Sangyo. niLirking tlie beginning of the recov-erv' prtjcess. As Li result of this Lind niLiny other firtiis'efforts, bv' Tluirsdav. Febriiaiy 6. Toyota's 'laliara andHino's Hamura plants v\'ere reopened, followed bythe other car assembly pkints affecteti the next dav'on a single-shift basis. By MondLty. Februaiy 10. a lit-tle tnore thLin one week after the pkint fire, allToyota-group assembly plants were back to nortiialwith production \-olutiies of 13.000 tt) 14.000 vehiclesper tla\'. After Linother week, the plants were in fiilloperation at the previously planned production vol-umes of IT.SOO vehicles per day. At that time, theproportion of P-vLilv es pit)duced by Aisin itself wasless than 10 percent of the totiil amoiint necessaiy; it

gradually increLised. however, reaching 60 percent byMLirch U and almost 100 percent by the end ofMarch, The bulk of the P-valve pi'oduction was tak-ing place Lit LipproxitiiLitely sixty-two firms, includingKorit.su Sangyo. which gave full priority to therestocition of P-valve production and often workedtlouble shifts through weekends.

In total, the fire cosi Aisin V7,8 billion lind Toyotaabout 70.000 vehicles and V16U bilHon in revenues,"Although Toyota t)fficials claim to have recoiipednujst ofthe lost vehicle production throiigh increasedoveniiiie Lintl holiday shifts, losses in the range ofV20 billion to V. 0 billion were umivoidable. mainlybecause the creatit)n of alternativ e P-valve sites wascostly.'' In the end. however. Toyota and Aisin coiildonly he gratefiil that group members achieved arapid and effective recovery and averted wliLit couldliLive been Li much more devListLitlng incitient.

The Recovery EffortHow could alternative P-\"Lilve pi-odiiction sites beoi-ganized and the deliverv- of the ret|uired 32,SOO P-valves a dLiy be resumed so tjLiickly? We describe theroles pkayed in the rect)very by six firms, which wevisited during our fieltl research: Toyota, Aisin Seiki.Denst), TLiiho Kogyo, Kav'aba Industrv". and KoritsuSLingyo. W'liile these firms differ in size, areLis of spe-ciLilizaiion. ptisition in the value chain, and financiallinkages to Toyota, they share several characteristics:a commitment to. and capabilities for. JIT productionand the ability to .solve prohlems at their .source."'

Fi-om the lieginning. it was clear that lintil Aisin couldrebuild its previous capacity, outside help would beindispensable. It was decided then that firms fromboth inside and outside the Toyota group would beLisked to set Lip LilternLitive P-valve production sites assotjn Lis possible, with Aisin providing technical assis-tLince. tiesign drawings, jigs (e,g., specialized drills),tnLichine tools. Lind raw tnaterials (e.g,. cast iron) sal-VLigeti from the fire.-' Aisin was tt) immediately beginsetting Lip Lilternative prodtiction sites in its otherplants Lis well.

Sixty-tv\'o firms responded to Aisin's call Linti itiimecli-ately began preparations to manufacture P-valves.Responding firms inckitled twenty-two of Aisin's ownsLippliers (e.g., Koritsu Sangyo): Toyota itself: thirty-six of Tov-ota's regLikir suppliers (e.g., Toyota keiretsLifirms such as Denso and Taiho Kogyo. independent

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suppliers sucli as K:ty:ih:i Industry' nnd AkebonoBrake Industry', and firms belonging to other keiretsusuch as Sumitomo Electric Industries); and four non-regular suppliers (e.g., Nnhco).

Aisin asked machinery makers in Japanand beyond to gather every availablemachine on hand, including exhibitionmodels taken from showrooms and equip-ment already promised to other clients.

Along with these firms weru ahout 150 others, includ-ing seventy machine-tool makers that were involvedindirectly in the recoveiy process, since machinery,drills, fixtures, and gauges had to be found to replace[he ones destroyed in the fire. Aisin asked machinery'makers in japan and beyond to galher uver>' avail-able machine on hand, including exhibition modelstaken from showrooms and eqi.iipment alreadypromised to other clients. For the sake of fast recov-er>', both regular and nonregular suppliers of machin-ery ic) Aisin were called on. The cooperatit)n of thesesuppliers was crucial to the success of the recoveryeffort: Lindoulitedly, many were hoping to increasesales to Toyota in the future.

Firms were asked to machine the needed parts usingAisin's design drawings and forged blocks and todeliver them to Aisin. Then Aisin would be responsi-ble for final assembly, quality control, and deliver^' toToyota and other customers, A few firms such asNabco, Sumitomo Hiectric Industries, and AkebonoBrake Industry already produced F-valvcs of differenttypes, but (nost had no experience with this particu-lar part. One firm, ihe sewing-machine manufacturerBrother Industries, had never made car part-s."*Althotigh the technology and skills involved in manu-facturing F-valves are relatively simple, their numer-ous and complex orifices recjuire highly precisemachining. Without the dedicated equipment used byAisin (which was largely destroyed in the lire).P-valve production would be slow and ardLious.

The situation was discouraging: the suppliers recrLiit-ed lacked sufficient tools, were mostly unfamiliarwith F-val\-L' production, and were inexperienced inresponding to crises of ihis magnitude. Tlie problem-

solving capahilities developed through long-term col-lahoraticm and the flexible deployment of resourcesenabled the firms to o\-erc(jme these obstacles andensured a ni\ik\ recovery of F-valve production and(if Toyota's assembly plants.

PreparationsThe first step involved the establishment at 5:30 a.m.on Saturday. February 1 (while the F-\^alve lines werestill on fire), of an "emergency response unit" at Aisinto centralize and coordinate efforts to deal with thecrisis in an orderly and organized manner. At 6:30a.m., the unit was reorgani;^ed and divided into fourteams, dealing respectively with production (forexample, the setting up of alternative productionsites), materials handling (for example, the deliveryof materials to those sites), liaison with cu.stomers(for example, Toyota, which was immediately con-tacted), and general affairs (e.g., negotiations withAisin's union). The unit's first meeting was held atncKm; twenty-seven meetings subsequently totjkplace until Febaiar)' 21. The second step involvedcontacting potential collaborators and deciding w howould do what, since many kinds of I'-valves wereneeded (there are niore than 100 main types ofI'-valves) and availahle equipment and capacitydiffered from firm to firm. After consulting its clientson which F-valves should be given priority, Aisinstarted as early as Sunday, I-ebruaiy 2 (the day afterthe fire), to fax design drawings to various firms thathad already voluntarily offered their help (e.g., TaihoKogyo, which had contacted Aisin on hearing ahoutthe fire on the radio) or had agreed to the retjuesiof Aisin or its clients (for example, Kayaba, which wasasked for help on the day of the fire hy MitsubishiMotors and the next day hy Toyota and Aisin),

In many respects, of course, the firms that "volun-tarily'" offered their help were forced to cooperatewith Aisin and Toyota. Failure to do so might havejeopardized future business relations with Toyota-group firms; moreover, because of JIT, most .suppli-ers were losing millions oi' yen every day thatToyota plants remained shut down. Still, coopera-tion worked both ways. F(;r example, Toyota chosenot to put pressure on Aisin to give priority to itsown models to the detriment of Aisin s otherclients, such as Mitsubishi, even though it couldhave easily done so given Aisin's financial andcommercial dependence on Toyota. FressuringAisin would have yielded Toyota short-term gains,hut in the long run. the parties concerned

Niihigiichi • Besudet Sloan Management Reviewfall 1998

remember such actions and possibly retaliate insome fashion.

After reviewing the faxed design drawings, its equip-ment availabilit>', and its pertinent technical capahili-ties, each firm had to notify Aisin of its decisionon whether to participate in the recovery effort. Theprocess was not easy bec;iu,se most of the firmshad never produced F-valves and knew little ahout thetechnical implications of F-valve production. Moreover,the design drawings they received lacked neces.sar)'technical details for first-timers and needed to bedecoded into something more readily understandable.

To make matters worse, P-valve produc-

tion had to be organized without Aisin's

special-purpose machines and drills.

To make matters worse, P-valve production had to heorganized without Aisin's special-purpose machinesand drills because these were seriously damaged inthe fire. As noted earlier, F-valves require highly pre-ci,se machining, and to manufacture more than 30,000of them a day requires highly customized jigs, drills,and transfer machines. Instead, firms would haveto rely on general-purpose machines such as machin-ing centers to manufacture F-valves, whicli mostfirms already possessed. This method would meanmuch higher labor content and lower productivitythan usual.

Compounding the prohlem, Aisin's know-how waslargely restricted to the special-purpose transfermachines, making it difficult for Aisin to instmct firmson how to manufacture F-valves hy other means.Furthermore, although a few drills were,salvaged fromthe fire, there were only enough to allocate one drillper firm, which slowed down production hecau,sethe drill had to he imed with extra caution to avoidhreaking. Moreover, not one hut many different drillswere needed, and the sciirce ones received fromAisin were not a perfect match for machining centers.

Yet another problem was the difficulty in controllingquality without Aisin's special-purpose gauges. Toensure the reliability and durability of the hrake .sys-tem, quality control is very strict, in\olving at least.seventy inspection steps per piece. Even though Aisinwas to douhle-check every incoming F-valve, firms

had to conduct some form of quality control heforedeliver^', using general-purpose gauges,

Finally, in the first few days of the crisis, Aisin was ina state of chaos and was difficult to contact. Indeed,so confused were conditions at Aisin that during theevening of the first day of the fire, Taiho Kogyo'sdirector of production control was wrongly informedthat master cylinders, not F-valves, were the mainprohlem for Aisin. Within days, Aisin installed 250additional fixed phones and 300 mobile phones in anattempt to accommodate skyrocketing inc|uiries. Themagnitude of incoming calls, however, overwhelmedAisin's capacity to respond.

Because Aisin lacked sufficient resources to providedirect assistance to e\'ery firm at once, collaboratingfirms had to figure out hy themselves how to pro-gram their machining centers for F-valve productionand find or make appropriate drills. For example,Denso .scrambled for drills from all over Japan andeven sourced some special ones from a U.S. makerarranged for hy Denso's Tennessee plant. AlthoughAisin supported these efforts as much as it could hysetting up a "drill center" to coordinate drill purchas-es and hy organizing meetings to discuss technicalprohlems and solutions, firms had to rely largely ontlieir own capahilities to hegin P-valve produclion.

For all these reasons, many firms declined to help atall, judging their equipment and capabilities insuffi-cient to manufacture I*-valves. But many accepted,including Oen,so, Taiho, Kayaha, and Toyota, whichagreed to manufacture hetween two and five types ofF-valves each. These and other firms then immediate-ly started preparations for F-valve production.

At this point, significant differences in the firms'approaches to F-valve production emerged. Densogave lull priority to in-house F-valve production, andsome of Denso's other proce,s,ses were temporarilyoutsourced to make room for F-valves. In all, ahoutforty machining centers were made available atDenso for F-valve production. 'I'aiho met with thirtyof its suppliers the day after the fire to plan an appro-priate division of labor, eventually invoK ing elevensuppliers in the effort, with Taiho itself taking chargeol" the final proces.ses. Fifty machining centers weremade availal:)le at two of the firm's three local plants.

Toyota .set up temporary production sites in itsIlonsha plant, entrusting F-vaive production to the

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division responsible for experimental prototype pro-duction and machiner\' maintenance, whose engi-neers and operators possessed considerahle know-how in setting up machines for new models andpreparing the transition to volume production.Kayaba's approach in\'oKed outsourcing F-\aKes tothree of its suppliers, with no actual F-\'alve produc-tion taking place in any of Its own factories. It chosethree prototype specialists, the largest with 110empk)yees and the others with only sixteen and six

54 emplo\'ees, respectively. Originally Kayaha had con-tacted ahout ten suppliers, of which ihree were cho-sen on the hasis of equipment availahility and techni-cal capahiiities.

The collaborating firms established their

own "emergency response units" to

coordinate P-valve production activities.

At this stage, the collahorating firms estahlished theirown "emergency response units" to coordinate F-valve production aclivities. A challenge lor manyfirms was to ensure close collahoration among usual-ly remotely related units. Kayaba .set tip a specialteam. Linder the direction of Kayaha's director of pro-duction engineering, to centralize control and coordi-nate activities with the suppliers concerned; the teamwas composed of sixteen employees from the ciualitya.ssurance, production engineering, and pLirchasingdepartments. 'I'hree salespeople were also dispatchedto Aisin to obtain real-time information and feedback.At Toyota, the production control department wasput in charge of coordinating in-hou,se F-\aKe pro-duction and direct a.ssistance to Aisin.

Production BeginsThe next step involved each firm completing its firstprototype In .send to Aisin for appro\al before vol-ume production. It was a tiny second-tier supplier.Koritsu Saiigyo, that first deli\ered its prototype on.Monday. Fehmaiy 3. only two days alter the fire."Denso, the largest and most famous supplier inToyota's group, was the second to deli\er a jiroto-type on the early morning of Fehriiaiy 5. followed hy'i'oyota and Taiho Kogyo iater that day. Kayaba's firstprototype was ready on FeliRiary 6. delivered fromthe sixteen-employee supplier, followed hy thosefrom the IlO-employee and the six-employee suppli-ers on February' 7 and February' 8. respectively.

The operatitjnal speed of the firms reflected theirfamiliarity w ith Aisin or with brake-related parts andiheir technical capabilities with machining centersand prototype making. In all cases, howe\er, workwas complicated by such difficulties as the lack ofdetails in Aisin's design drawings, appropriate equip-ment, and direct a.ssistance from Aisin. As a result, inmaking many of ihe production decisions, firms hadto experiment and exercise judgmenl. which explainsthe variety of methods u.sed lo manufacture P-vaives;Taiho u.sed two drills: Toyota used only one for asimilar task. At Kayuba, iwo of the three suppliers,including the six-employee firm, ended up makingtheir own drills.

Onte ihe prototypes were appro\'ed. each firmmoved to xolume production. Kon'isu Sangyo began\'olume produclion on February' -i. Denso started \t)l-ume production on the evening of February 5, w ithproduction volumes of 1,600 units a day (mi,sed to2.200 on February 11 under pressure from Toyota).Taiho started \olume production the next day, begin-ning with low hatches of about fifty units and gradu-ally moving toward \olumes of 2,000 units a day,Kayaha started on Fehrtiar\' 7 with a daily pi-ockiction\()lume of 520 imits. Toyota began volume produc-tion on i-ebruaiy 6.

Solving Technical ProblemsThe next step in\'ol\ed sol\ing the technical proh-lems that emerged during volume production. SinceAisin was unfamiliar with F-\al\e production hymachining centers, it was unable to provide solu-tions on its own. A testimony to the firm's impres-sive technical capabilities, Den.so a.ssumed an impor-tant role, w ith its engineers quickly solving oneprohlem after another, Denso's solutions were ihendisseminated to other participating firms during spe-cial problem-solving meetings organized hy Aisin.Denso also modified Aisin's design draw ings andproce.ss instructions lo make them more appropriatefor machining centers, which Aisin passed on toother firms.

These problem-.solving capahilities are the hallmarkof firms ingrained with the principles of the ToyotaFroduction System CFFS), or lean production. Thecapacity to disseminate solutions quickl)' is also char-acteri.stic of 'loyota-group firms; they regularly dobenchmarking studies and sei up problem-solvingsuitK' groups in Toyota's supplier association, tlieKyobokai. or as part oi'Jishiikoi (voluntaiy study

Nislsguctii • Beaudet Sloan Management Review

group) activities, usually in the presence, and .some-times under the supenision, of consultant.s sent freeof charge by 'Foyota. These efforts, along with themeetings of company presidents, the training pro-grams and internships held for lower-tiered suppliers'enijiloyees, and the constant flow of employeesamong firms, permit rapid horizontal and vertical dif-fusion of best practices.

Despite these efforts lo di.s.seminate the newly foundbest practices and to standardize F-\'al\e production,the diversity in practices persisted as .some firms pre-ferred to slick to their own methods. For example.Taiho declined five oLit of six design modificalionsproposed by Aisin bec;iuse ihey created di.screpancyprohlems with 'l'aiho's existing ec|Liipment.

Once the major technical problems were soKed. thefirms de\oted their efforts to raising produciiviiy andincreasing \'olume througii kulzcii acti\'ities. Again,years of training in TFS principles ensured that theappropriate cajxtbilities and routines were alreadyin place. At Toyota, tor example, cycle lime was re-duced from more than two minutes to one minute.twenty seconds, within a few weeks, hy minimizingchangeover times through ihe pre.setting of themachining centers {F-\alve protkiclion was still rela-tively slow becau.se of limits to increasing prockictiv-ity in the ab.sence of Aisin's s]iecial-pur]x>se transfermachines). The results of the.se efforts were thenrecorded on video lo be stocked as "organizationalmemoiy" should the need to nianufactiue P-val\csemerge again.

Flexible employee deployment and

procedures, wbich are also associated

with Toyota and many other Japanese

firms, were evident throughout the effort.

The ability of Toyota and the other firms to move quick-ly toward shortening ,set-up times and to resume full JITproduclion demonstrates how deeply ingrained the IPSis in lhe.se firms. For example, at Taiho. which usedkiinhciu lo make F-valves and delivered them lo Aisinin eight batches |X'r day. managers .stre.ssed that thiswas the only way they knew how to do it.

Flexible employee cle|iloyment and procedures, which

are also a.ssociaied with Toyota and many otherJapanese firms, were e\iclent throughout ihe etiort aswell. At Aisin, with union cooperation,the majorily of employees were mobilized for thereco\eiy effort, which invoKed, for example, white-collar staff fiom public relations and accountingdepartments helping w ilh plant operations. Al Toyota,the siiualion often dictated lliai managers and work-ers make decisions and lake action immedialely wiih-oiil necessarily following normal procedures orobtaining permission from superiors or hookkeepers.luuployees, after all. were thrown into exceptionalcircumstances that rec|uired overcoming the usLial de-partmental divisions and relaxing many bureaucr.iticproceckires (for example, regarding orders formachineiy and materials witlioul proper invoices orchanging shifts of workers without prescrihed i)riornt)tice).

The How of employees also occurred among Urms,1-or example, at leasi 300 Toyota employees fromproduction control, maintenance, production engi-neering, purchasing, Cjualily control, and materialshandling could be seen at Aisin at any time duringthe first three weeks, helping Aisin set up more per-manent F-valve a.s.semhly lines, among other tasks:oilier automakers sent ahout foiiy people to Aisin,Toyota employees (in particLilar from the mainte-nance tlepartment) were atso SK:n\ Ko Denso to a.ssistin the F-\al\e production process, stasing until llieyohseired that e\eiything was in order: they al.so \ isit-ed the machine-tool makers to help them repairAisin's damaged transfer machines, an effort that wascompleted hy mid-March. Wiiliin the Aisin group,\arioLis flows of personnel also took place, for exam-ple, from Aisin sLi|5pIiers lo Aisin (about 250 people).In total, more than 500 employees from Aisin's cus-tt)mers and sujipliers as well as Toytita-group firmswere on site at Ai.sin during llie peak days of ihe cri.sis.

As these examples demon.str.ite. the I'-vaI\e recover)'effort in\ol\ed more ihan just individual initiatiws toset up lempcjrary produclion siles and increase j)ro-ductivity. The flow of employees within and amongfirms, llie meetings organized to discuss and dissemi-nate .solutions to leclinical prohlems. and the group-level coordinalion efforls exerted by Aisin's "euier-gency response unit" and Toyota's production controldepartment all contributed to a successful outcomethat was more than just the sum of individual efforts,The.se capabilities for groupwide coordination andorganiziitional learning were revealed once again sev-

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eral months after the incident, w-hen Aisin Seiki puli-lished a booklet on how to organize the rapid recov-ery* of production following a disa.ster such as a fac-ton' lire.'" Hased on lessons learned during the crisis,the booklet was distiibuted to 500 firms, including allthose that had joined ihe recovei-)- effort and allremaining Kyohokai members. Tlie gesture was away of thanking the firms for iheir sufiport andcnstiring that mistakes would not be repeated. Thelessons fiom the Aisin incident were thiis ruiordeci asorgani/ational tnenion' for all cooperating firms touse should the- need ever arise.-'

Settling CompensationP-valve production continued until March U) forDen.so. until March 6 for Taiho (with one small-volume item lasting until the end of March), untilApril 10 for Kayaba. until mid-March for Koritsu. anduntil March 15 for Toyota. Considerable expenseswere incurEvd during the recoveiy process, includinglabor costs (which were particularly high because ofthe hick of specialized machinery and experience inF-valve production and because much o\' the workincluded overtime-) and uiLichinen" and tooling ctjsts.--

I'irms including Denst) and Kayaha had begun pro-duclion of F-valves without making any explicitagreements with Toyota or Aisin on eventual com-pensation for their expenses. There was neither timenor rea,son to do so. Eventually it was agreed thatAisin would fully reiEuburse all firms for the expensesincurred in F-valve production, including labor ccxsts.I-'or example, Denso would he compensated by Aisinfor the more than V30() million in labor, ct]uipment.special-purpose oil. and other costs. The arrangementaddressed only direct expenses, hov\ever. Moreimportant were the losses in output during the clo-sure of a.s.sembly plants incurred by Toyota and allthe suppliers involved.

Toyota settled the issue in a surpii.sing manner: ilannounced that all its first-tier suppliers wouldreceive a payment eciuivalenl to I percent of theirrespectiv e sales to Toyota from Januaiy to .March1997. This amounted to overall payments of morethan Y15 billion, vvitli Denso. for example, lo receive¥1.5 billion. Many of the firms x'iewed the offer as areward for cooperation rather than as compensation.-'

Toyota's decisicjn was then replicated throughoutthe network, as most of the first-tier suppliersannounced in turn that they would pass on most of

these payments to their ov\n (second-tier) suppliers,and some of these then announced their intentionto compensate their own (ihird-tierj suppliers in thesame- manner.

Lessons from the Toyota GroupWhat lessons can be drawn from the Toyota group'soi-gaiiiA'd effort to recover Irom the Aisin fire-? Whilethe incident underscores the risk of single sourcing ina JIT setting, ihe ilunues of such an event recuriingare low.-' Furthermore, apart from natural disastersor tires, there is usually little need for coordinatedresponses ol the magnilude we liLive described here.(Strikes pose different problems because the- settingup ol alternative sites al other firms would he viewedas interference and would generally be unacceplableto trade unions). .More signific'ant for t)ur purposesLire the- iniijlications of the- recoveiy efibrt ftii' even"-day situations.

We believe that this episode demonstrates the bc-iie-tits ot clustered firm networks of the kind that ToyotaLUid its partners have constructed. The Aisin incidentreveals the capacity of the-se networks not only forself-organized, flexible re.sponses to a crisis but al.sotor roLitine problem solving that leads to increnientLiIimprovements in firm Ltnd grou|") pertbrmance. Inother words, the capabilities that inLide possible thereopening of ToyotLi-group jilants in a few daysinstead of months are the .same ones that have madeToyota and its suppliers among ihe most competitivein JapLiii and the world under nuriiial circumstance.s.

A variety of institutionalized practk'es fo.ster thesecajxibilities. For example. JIT has the effect of imme-diately revealing bottlenecks, forcing workers andmanagers to continuously strive lo detect Lind rapidlysolve emerging problems. During the recovery effort,JIT made it easier to locate- hottic-ncc ks LIIKI improvethe prodLKtiv ity t)f the- emergency F-valve productionsites. In a JIT environment, workers and managersgradually accjuire CLipabilities for effective and prag-matic problem solving, enhancing their ability overtime to deal with emerging problems. As the Aisiiiepisode reveals, these capabilities are shared not onlyby I'oyota and its group of first-tier su|>|oliers (fcjrexample. Denso and KayabaJ hut also by many sec-ond-tier suppliers.-'

These- mechanisms also work at the interfirm levelLincl help foster groupv\-ide problem-solving capabili-

Nishiguchi • Beaudet Staan Managemenl HeviewFall 199B

In this case, Toyota "pulled the cord" and

stopped the entire value chain, from raw

materials providers to assemhiy plants,

forcing everyone to deal immediately

with the prohlem.

ties. Because orders from 'I'oyota woukI he severelycurtailed until I'-valve production could be restored,it was impo.ssible for firms such as Denso or evenKayaba to ignore ToyotLi's and Aisin's troubles. Justas Toyota encourages its assembly-line operators tostop tile line whenever LI serious problem arises topromote rapid problem-solving at the source, so. inthis ca.se, Toyota "pulled the cord" and .stopped theentire value cliLiin. from rLiv\- niLiterlLils providers toassemhiy plants, forcing everj'one to deal immediate-ly with the problem. The Aisin incident revealed theextent cjf Toyota-group firms' CLipubilities for de;ilingeffecti\'ely w ith such problems, which were the prod-Lict of years of working in Lin environment w hereinterfirm coordinLition and collaboration v\'ere crucialto keeping operations running smoothly.

Given the incre-Lised competition within Japanesekeiretsu. it is likely ihat ToyotLi suppliers cooperatedto the extent they did in the hopes of being reward-ed hy increased business opportunities in the tLiture.We believe thai such incentives to cooperate wereinsufficient, however; the necessLirv' capahililies tocooperate effectively had to he in jilace as well.

Many outside olwen-ers lielieved that the Aisin inci-dent revealed the vulnerahiliiy of JIT environments,arguing at the time that Liny unexpected prohlemc]Liickly leads to the breakdown of the system. Yetneither Toyoia nor Liny other firm that we inter-viewed was considering ahLindoning JIT. With eachvehicle containing more than 30,000 parts, it is justtoo costly to keep security butTers tbr each compo-nent: indeed, any production system is vutnenilile tounexpected crises such as a plant fire.

Although crises are impossilile to predict, the capaliil-ities required to overcome them effectively and rapid-ly can be developed in advLince. The constraintsimposed by JIT ensure that firms gradLially make thenecessary preparations, since even routine prolilenis

CLin become 'minicrises" whose resolution leLids tonew learning experiences. In other words, because otits inherent fnigility, firms value JIT fbr the role itplays in fostering problem-solving and continuousimprovement capLibilities. at the individual firm andovenill group levels Lind for both routine Lind niLijorproblems.

Several practices institutionalized within the Toyotagroup support the firms in their ciuest to developthe.se capabilities: information and know-how sharingin the Kyohokai and jishuken. regular tninsfers ofemployees among group firms, and cither practicesinvolving tace-to-face contact,-'" These practices facili-tate orgLinizalional learning, encourage teamwork.and Ibster a set of common "codes" and understand-ings among group members regarding technology.managemeni, and the "rules of the game." Thus theyprovide the basis for coordination and ease of coni-municLition during times of crisis and routine alike,as tacit Ligreements Lind understandings ensure thatinformation is transmitted without having to explaineveiy thing.-"

Although the mutual dependence impo.sed by JIT. thecompetition for future contracts, and peer pressure toconform to group norms woLild seem to compelcooperative behavior, in reality, cooperation comes"•naturally" in a network where firms have deep Lindintimate knov\'ledge of eLich other. Trust was niLini-fested throughoLit the recover)' effbrt. as firms simplyassumed that compensation for their efforts would beforthcoming and fair and that other firms would nottLike advantage of the situation lo .steal proprietLirv'secrets or new contracts.-" Incidents such as the Aisinfire further strengthen these sentiments, as trust andreciprocity are deepened each time a crisis occurs.

Cooperation is also promoted by Toyota: as the rec-ognized IcLider, it controls the general direction of thegroup. Toyota's financial resources Lind control overthe design process make it the nLitunil leader, but inthe long run. it is Toyota's performance record thatensures that suppliers follow its suggestions and ini-tiLitives.-" Firms knov\' that it pays to fbllovs' this partic-LiUir leader, as suggested by Toyota suppliers' consis-tently above-average profits,"' Moreover, suppliersaccept the constant pressure to improve perforniLinceIx'CLiuse VLirioLis practices ensure that firms are notleft alone to develop capahilities and that Toyotadoes not deniLind Linything tliLit it could not do itself.Toyota's demands (e.g., cost-reduction targets) are

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Nishiguchi • Beaadet

bnscci on rational calculations and indispulahlL' e\"i-tliLit 'Inyota i.s in\-anably able to ol'tcr.

Toyota".s leack'r.ship is Lintli.' pLitL'cl and omniprcsenl,biit at tliL' satiK' titiiL'. it is lafi uly decetitfalizcci andot'iun invisibkv Kaihc-i- than .yiw dirctt and detailedorders to ils t;roup firms. Toyoia disseminates generalapproaches, or "recipes." Hi\"ing firms ihe tools toSL'lf-orj;ani/e in times ot crisis and deal aiitotiomoiislywith emeri>ing prt)bletns. These tools are disseminat-

58 ed lo I'irsi-tier suppliers, which are ihen responsiblefor disseminatini^ them to tlieir own network of .sec-ond- anti third-tier suppliers. In this way. .similar pat-terns of behavior are replicated throughout the net-work without any explicit orders from Toyota (asexemiilifietl by the replication of Toyota's 1 percentcompensatoiy bonus policy throughoui the group).An advantage of ihis approach is ihat responses maybe dltTerentiated and tlexibK- adapti-d to each firm'sparticular situation, as tlie "recipe" !ea\'es consider-able rootii for discretion.

One might \%-onder. then, why all firms do not adopt

Toyota-group practices, if the benefits are so great.The answer is tiiat uniLilating Toyota's model is noteasy; it i.s the product of decades of investments insupplier capabilities and in trust and commitment.E\'en in Japan, many firms are unable lo replicateeither the structure or the performance of the'I'oyota group. NevertIiele.ss. we belic'\'e thai theToyota model offers an excellent goal for firms tostrive toward. Through earnest and persistent eHort.sto build supplier capabilities anti promote horizontalknowledge siiaring among suppliers, firtns can reapSLibstLintial gains in kjng-term competiti\e perfor-mance. These efforts .should be the tiext step for theman\' firms that lia\'e already begun the work ofrestructuring supplier relations in the direction ofthe partnership tiiodel. Moreo\er. Japatiese firtiiscurretitly under pre.ssure to rationalize their supplybase and iidopt more market-oriented supplier man-agement practices could also learn from Toyota. Itsapproach towartl siic)ply ihain management gives itboth Hexibilit)" and continuous cost reductions antihas proved to be effective e\'en in the currentdomestic recession.

ReferencesThe authors wish to thank Vaichi Aoshimn. MichaelA. Cusumano. Takahiro Fujimoto, Ken KusLtioki. JensLaagc-Hellman, Tom Roehl, Annique LJn, D. EleanorWestney. and Lin Xu for their valuable comments, aswell as the Japan Automobile Manufacturers'Association, the Japan Auto Parts Industries'Association, the Institute for Inlernalional EconomicStudies, the International Motor Vehicle Program althe Massachusetts Institute of Technology. IbeSasakawa Peace Foundation, and the Ministry cfEducation. Science. Sports, and Culture for the sup-port received for our research. The above mentionedpeople and institutions aro not responsible for anymistakes we might bave made.

• 1, J,H. Dyer. "How Chrysler Created an AmericanKeiretsu," Harvard Business Review, volume 74,July August 1996. pp. 42-55;S.R Helper and M Sako. "Supplier Relations mJapan and the United States: Are TheyConverging''.'' Sloan Maiidgnment Beview. volume3B. Spring 1995. pp. 77-84. andT. Nishiguchi, Strategic Industrial Sourcing TheJapanese Advantage [^sv/yo(\i\ Oxford UniversityPiess, 1G941,• 2. J P Womack and D.T, Jones, lean Thinking.Banish Waste and Create Wealth in YourCorporation {tievjYQit Simon S Schuster, 1996]• 3, H, Ulrich and G.J.B, Probst, eds,. Sclf-Organiiation and Manageriien! of Social Systems(Berlin Springer-Verlag. 1984]• A. Although, in Japanese, tbe company's name ispronounced "Aishin Seiki." we use tbe registeredEriglish name "Aisin Seiki~ in this article. Sales to

Toyota currently account for 65 percent of Aisin'stotal sales,• 5. Another interpretation migbt suggest that thecrisis occurred at a relatively good lime, that is,when Toyota profits were at their tbirrf-highest levelever due to booming sales in Japan, tbe recentdepreciation of the yen, and cost-saving efforts inproduct development and other areas Ihat bavesaved Toyota nearly S2.5 billion See.B Bremmer. L, Armstrong. K, Kerwin, and K.Naugbion. 'Toyota's Crusade." Busitiess Week.7 April 1397, pp. 44-5D,• 6. In this article, tbe term "Toyota group" refers toToyota's network of core suppliers, including affili-ates (e,g. Aisin Seiki). independents |e,g,. KayabaIndustry), and affiliated vehicle assemblers (e g .Hino Motors), Toyota itself distinguishes the Toyotagroup, composed of fourteen of its closest affiliates,from tbe rest of its suppliers. All Toyota-group affili-ates and many of Toyota's important suppliers belongto Ibe automaker's supplier association, tbe Kyohokai(245 members], for more details, see

M. Sakn, "Suppliers' Associations in the JapaneseAutomobile Industry. Collective Action for TechnologyDiffusion," Cambridge Journal of Economics, volume20. November 1996, pp 651-671. Within this associ-ation is a core group of aboul sixty firms thataccount for 8D percent of Toyota's total parts pur-chasing costs.• 7 Interviews were conducted on March 24. 25.and 26, 1997. with managers of Toyota MotorCorporation. Aisin Seiki Co., Ltd , Koritsu Sangyo,Ltd., Taiho Kogyo Co,, Ltd., Kayaba Industry Co,, Ltd,,and Denso Corporation (formerly. Nippondenso Co,,Lid,).• 8. Because the Japanese model of assembler-

supplier relationships is already well documented,we do nol detail them in this article: interested read-ers might benefit from consulting;J,H, Oyerand W,G. Oucbi, "Japanese-StylePartnersbips Giving Companies a Competitive Edge."5/03" Management Review, volume 35, Fall 1993,pp. 51-63;Nishiguchi (1994];

T, Nishiguchi and J, Brookfield. 'Tbe Evolution ofJapanese Subcontracting." Sloan ManagementReview, volume 3B. Fall 1997, pp 89-101; andJ.P Womack, D,T, Jones, and D, Boos, The MachineThat Changed the lVor/rf(NewYork: RawsonAssociates. 1990),• 9, Single sourcing is less common in Japan than isusually tbought. as many Japanese automakers use"parallel sourcing"; seeJ. Richardson, "Parallel Sourcing and SupplierPerformance in the Japanese Automobile Industry,"Strategic Management Journal, volume 14, July1993, pp, 339-350.Although a particular model's pans may be sourcedto a single supplier, slightly different versions areoften SDurced to a competing supplier, enabling Iheassembler lo compare each firm's performance andpromote long-term competition between tbe suppli-ers. Single sourcing is usually adopted by smallerassemblers in Japan,• 10. Like Denso Corp,, Aisin Seiki was originally adepartment within Toyoia before it was spun off as asubsidiary in 1949, Toyota presently owns approxi-mately 20 percent of Aisin shares, and several ofAisin's executives were originally Toyota managers,including Aisin's current president Toyoda Kanshiro(the son of Toyoda Eiji, Toyota's former president andcurrent honorary chairman). But these formal and

Nishiguchi • 8eBudeI Sloan Management ReviewFall 1998

informal linkages are not sufficient to explainToyota's high reliance on Aisin. The supplier's highperformance and reliability must also be considered,• 11 Toyota vehicles are assembled not only inToyota's own assembly plants but also in plants ofToyota keiretsu firms such as Toyota Auto Body,Araco. Kanto Auto Works. Toyoda Automatic LoomWorks, Central Motors. Gifu Auto 8ody. Hino Motors,and Daihatsu Motor Co On Tuesday. February 4. onlyDaibatsu's Ikeda plant was kept open. Mitsubishi,which also used Aisin P-valves and had only abouttwo days' worth of stock, had to close some assem-bly lines on February 5. Isuzu and Suzuki were notaffected, bowever, because they were able to priori-tize production schedules for models not using AisinP-valves and because tbey bad five days' and tbreeor four days* worth of P-valves in stock, respectively.• 12, The Ministry of International Trade andIndustry's estimates of the loss in output duringFebruary 1997 caused by tbe fire were 8,3 percentfor the entire transportation equipment industry and1 percent for all metal-related industries• 13. As a consequence of the Kobe earthquake inJanuary 1995, production was curtailed for severaldays, but not as severely as in the aftermath of Ihefire. Most production equipment (e,g., jigs and fix-tures, machine tools, transfer machines) of theaffected Toyota supplier plants (Sumitomo Electricand Fujitsu-Ten] was salvaged intact or repairedquickly, resulting in Dniy minor disruptions forToyota's assembly plants and only for a few models.In contrast, Aisin P-valves, which are used in almostevery Toyoia model, and their assembly lines wereburned down, with three transfer machines seriouslydamaged. After Ihe earthquake, no temporary pro-duction sites outside the affected suppliers were setup. since Toyota assisted them at the suppliers' ownfacilities• 14 "Sales, Profits Rise at Toyota Affiliates."A//We/lVeeWKl9Mayl997. p, 7,• 15. V. Reitman, "To the Rescue; Toyota's FastRebound after Fire at Supplier Shows Why It IsTough," Wall Street Journal. B May 1997, pp, Al andA16.• 18. Toyota (69,000 employees] is the world's third-largest automaker and Japan's largest firm in termsof sales. Both Aisin Seiki |11,100 employees) andDenso 156,500 employees) are part of what Toyotadefines as the Toyota group, Aisin and Denso sell,respectively, 65 percent and 50 percent of their out-put to Toyota and are. respectively. 20 percent and23 percent owned by Toyota Like many Toyota sup-pliers nowadays, their clients include everyJapanese automaker as well as many otherautomakers in the world. Aisin specializes in brake-related parts (and its subsidiary. Warner-Aisin, intransmissions]; Denso specializes in electric andelectronic auto components and is now the world'sfourth-largest automotive parts supplier, Taiho Kogyo(1,350 employees), although not nominally part of theToyota group, sells 74 percent of its output to groupfirms (59 percent to Toyota itself), is 58 percentowned by Toyota, and has many former Toyota man-agers occupying key positions, including Taiho'schairman |in contrast. Denso has only one Toyota-bred executive]. Its mam products are engine bear-ings, aluminum die-cast products, and dies, Kayaba

is considered to be an independent supplier in theJapanese auio industry, with both Toyoia and Nissanowning approximately the same number of its sharesIB 5 percent and B,l percent, respectively). Its clien-tele is diversified, with Toyota accounting for about25 percent of sales and Mitsubishi and Nissanaccounting for 15 percent and 12 percent, respec-tively, Kayaba specializes in shock absorbers andhydraulic equipment and has 47 percent of Japaneseand 22 percent of world market share for shockabsorbers, Koritsu Sangyo (320 employees) is a sec-ond-tier supplier higbly dedicated to Aisin Seiki, Itspecializes in transmission-related parts.• 17. Mainly P-valve production was to be out-sourced in this way. Existing capacity to produceclulch master and tandem master cylinders in-housewas deemed sufficient; ihese parts were not manu-factured solely at Aisin's Kariya plant, whereas P-valves were Only five firms were needed to assistAisin with the production of the clutch master andtandem master cylinders,• IB, Wall Street Journal. 8 M2^]^^7.• 19. Koritsu Sangyo is perbaps an exceptional case.Its president heads Aisin's supplier association. It isone of Aisin's best-performing suppliers, tbe winnerof several awards for quality. It is highly dedicated toAisin (the supplier's president wished he had hadthirty hours per day instead of just twenty-four tohelp Aisin during this incident), the result of decadesof continuous and stable relationsbips involving notonly business transactions but also know-howexchange and capability-upgrading activities,• 20, Kinkyu seisan fukkyu kodo gaido (Action guidefor the emergency recovery of production]. AisinSeiki Co., Ltd., 30 September 1997, The booklet wasedited by Aisin's Corporate Planning Office, followingthe Aisin president's directive that the office recordeverything ihat happened from day one of the inci-dent so that its lessons could be compiled for lateruse• 21, The booklet contained; (1] a list of the majordifficulties encountered during tbe crisis, includingtbose caused by Aisin's mistakes |e,g,. distributingdrills made for special-purpose machinery tbat couldnot be found!; |2] guidelines for organizing an emer-gency response (e.g,. how to set up an "emergencyresponse unit" and various teams], (3] key points onwhat made the rapid recovery possible; |4) a flowchart describing Aisin's efforts from the beginning tothe end of tbe crisis; [5] a flow chart describing eachteam's function; and (6] detailed guidelines for eachteam's activities [including examples of checklistsand order forms used during the crisis].• 22 Hundreds of Denso employees were involveddaily in P-valve production, working double shiftsand weekends for the first two weeks. At Taiho.about seventy people were directly involved in theemergency production effort, including fifty-five peo-ple fully dedicated to P-valve production At Toyoia.twenty-five employees were directly involved in in-house P-valve production, while hundreds more weresent to Aisin and other firms to assist in the recoveryeffort.• 23, It should be noted that Toyota could affordsuch payments at the time because profits werehigher than expected, mainly as a result of the con-linued depreciation of the yen. The compensation

scheme can also be interpreted as having the objec-tive of spreading the unexpected gains from thelower yen and thus averting criticisms that Toyotawas monopolizing them,• 24 Suggestions proposed for alleviating the risk ofinterruptions caused by such disasters included |1)reducing variety of parts, among other reasonsbecause excessive variety of P-valves complicatedthe setting up of alternative production sites afterthe fire; |2) dispersing production facilities. (3]increasing education efforts toward fire and accidentprevention; and (4) increasing parallel sourcing.Regarding P-valves. however, unconfirmed reportssuggest that Toyota will probably continue to relyalmost exclusively on Aisin for P-valves, indicating areluctance to forfeit tbe many benefits of singlesourcing. e,g,. possibility of important cost reduc-tions through exploitation of scale economies; sim-plification of parts procurement and quality-controlactivities, and building of trusted relationships witha reduced number of suppliers.• 25. The examples of 320-employee Koritsu Sangyobeing tbe first to complete a P-valve after the fire orof Kayaba's six-employee prototype specialist thatmade its own drills for P-valve use are telling in thisregard,• 26. A Beaudet. "Knowledge Diffusion in theJapanese Automotive Industry The Role ofKyoryokukai and Jishuken" (Hitotsubashi University.Graduate School of Economics, unpublished master'sthesis),• 27.1 Nonaka. "The Knowledge-CreatingCompany." Harvard Business Review, volume 69,November-December 1991. pp. 96-104;I. Nonaka and H, Takeuchi. The Knowledge-CreatingCompany How Japanese Companies Create theDynamics of Innovation {Uevi York; Oxford UniversityPress. 1995].• 28, It should be noted that P-valves are relativelymature products and that Aisin's technology was notparticularly advanced or of a proprietary kind• 29, T, Nishiguchi and E. Anderson. "Supplier andBuyer Networks," in E.H, Bowman and 6.M, Kogut.eds . Redesigning the firm (New York. OxfordUniversityPress. 1995). pp. 65-B4,• 30, J.H Dyer. "Specialized Supplier Networks as aSource of Competitive Advantage; Evidence from theAuto Industry," Strategic Management Journal, vol-ume 17, April 1995, pp, 271-291.

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Nishiguchi • Beaudet