How Toyota overcame the semiconductor and electronic chip crisis in the world

How did Toyota keep producing and making cars when chip production was off

The world’s semiconductor and chip crisis has been catastrophic, but one of the most optimistic signs of recovery from the Corona crisis has been the global rise in consumers’ appetite for new cars. But that momentum has been blatantly halted by a crippling shortage of semiconductors — shortages that have left auto manufacturers slow or even halt production as they scramble to secure enough chips to build vehicles.

An unexpected rise in demand was not the only factor in the shortage: a series of unexpected disasters also intertwined the semiconductor supply chain. A strange cold snap in Texas in February closed factories at major chipmakers. And a drought in Taiwan at about the same time threatened to drain the island’s supply of semiconductors (because the chip industry requires pools of water to wash industrial chemicals). In March, a fire broke out at a factory at Japan’s Renesas Corporation – the industry’s leading supplier of chips.

Toyota pioneered a just-in-time manufacturing strategy, and in the case of chips, the Japanese manufacturer decided to stockpile what became key components in cars a decade ago, before the Fukushima disaster. That cut Toyota’s supply chains on March 11, 2011, and the world’s largest automaker realized that the lead time for semiconductors was too long to deal with devastating shocks like natural disasters.

Toyota has come up with a Business Continuity Plan (BCP) that requires suppliers to stock two to six months’ worth of chips for the Japanese automaker, depending on how long it takes from order to delivery.

Toyota protects itself from the threat of a global shortage of semiconductors

Toyota is so far largely unaffected by the global shortage of semiconductors after a surge in demand for electrical goods in light of the coronavirus shutdowns forced many rival automakers to suspend production.

Toyota surprised competitors and investors last month, stressing that its production would not be significantly affected by a shortage of electronic chips, which have forced Volkswagen, General Motors, Ford, Honda and Stellants, among others, to slow or suspend some of their production.

Harman International, a specialist in car audio, display and driver assistance technology: “Toyota was the only automaker properly equipped to deal with the lack of chips.” In cooperation with Harman, while Toyota raised production of its cars for the fiscal year ending this month and raised its full-year profit forecast by 54%.

The classic solution to the semiconductor and electronic chip crisis

Harman is part of South Korea’s Samsung Electronics and was short on CPUs and power management integrated circuits as early as November last year. Harman didn’t make chips, and because of its ongoing agreement with Toyota, Harman has had to prioritize automaker Toyota and make sure it has enough semiconductors to keep its digital systems supplied for four months or more.

The electronic chips now in short supply are microcontroller units (MCUs) that control a range of functions such as braking, acceleration, steering, ignition and combustion, tire pressure gauges and rain sensors.

Toyota changed the way it buys MCUs and other microchips after the 2011 earthquake, which caused a tsunami that killed more than 22,000 people and led to a fatal meltdown at the Fukushima nuclear power plant. In the aftermath of the earthquake, Toyota estimated that its purchases of more than 1,200 parts and materials might be affected, and made a list of 500 priority items that would need safe supply in the future, including semiconductors made by major Japanese chip supplier Renesas Electronics.

The repercussions of the disaster were so serious that it took Toyota six months to return production outside Japan to normal levels, after it did so at its factories in Japan two months ago. It was a huge shock to the Toyota system, as the smooth flow of components from suppliers to factories to assembly lines – plus meager inventories – was pivotal to its survival as an industry leader in efficiency and quality.

At a time when supply chain risk is front and center in nearly every industry, the move shows how Toyota has been willing to roll out its own rules when it comes to semiconductors, and its plan has paid off as it continues to reap future planning. The goals of its lean inventory strategy are to become sensitive to inefficiencies and risks in supply chains, identify the most potentially harmful bottlenecks and learn how to avoid them. He continued, “For us, BCP was a simple, classic solution.”

No black boxes in the semiconductor and electronic chip crisis

The sources said Toyota pays for the storage arrangement with chip suppliers by returning a portion of the cost reductions it requires from them each year during the lifecycle of any car model under so-called annual cost-cutting programmes. While there are different types of MCUs, the ones that are in short supply now are not high-end chips but are more common with semiconductor nodes ranging from 28-40nm.

Inventory of MCU chips – which often combine multiple technologies, CPUs, flash memory, and other hardware – is held for Toyota by parts suppliers such as Denso, which is partly owned by the Toyota Group, chip makers such as Renesas and Taiwan Semiconductor Manufacturing, and chip dealers in Japan. the scientist.

Toyota’s continuity plans for chips have also shielded them from the impact of natural disasters exacerbated by climate change, such as severe typhoons and rainstorms that often cause floods and landslides across Japan, including its manufacturing hub in the southern Kyushu region where Renesas also manufactures electronic chips.

One of the sources involved in the supply of semiconductors said that Toyota and its subsidiaries are becoming “more risk averse and sensitive” especially to the impact of climate change. But natural disasters are not the only threat on the horizon. Automakers fear further disruptions to chip supplies due to increased demand as cars become more digital and electric, as well as fierce competition for chips from smartphone makers to computers to aircraft to industrial robots.

The fact is that Toyota has another advantage over some competitors when it comes to chips thanks to its long-standing policy to ensure that it understands all the technologies used in its cars, rather than relying on suppliers to provide “black boxes”. About this, one of the Toyota engineers said: “This basic approach distinguishes us from others.”

There has been an explosion in the use of semiconductors and digital technologies by automakers this century thanks to the advent of hybrid and all-electric cars, as well as autonomous driving and connected car functions.

These innovations require more computing power and partly use a new class of semiconductors called system on a chip, or SoC, which roughly combines multiple CPUs on a single logic board.

This technology is so new and specialized that many automakers have left it to large parts suppliers to manage risk. In keeping with the no-black box approach, Toyota developed a deep internal understanding of semiconductors to prepare for the successful launch of the hybrid Prius in 1997. Years earlier, Toyota had sourced engineering talent from the electronic chip and semiconductor industry, and opened a semiconductor plant in 1989 to help design and manufacture MCUs used to control the Prius’ powertrain systems.

So Toyota has been designing and building its own MCUs, designing and manufacturing other chips for three decades and even moving its chip-making plant to Denso in 2019 to standardize supply operations. Toyota’s early quest to develop a deep understanding of semiconductor design and manufacturing processes was a major reason why it was able to avoid shortages, as well as decades of continuity.

That Denso deal may indicate that Toyota was finally ready to abandon the black box approach, even though the supplier is part of Toyota’s broader group. A source from Toyota expressed his concern, “We were fine this time, but who knows what lies ahead?” Another source expressed his concerns, saying: “We may be losing our grip on technology in the name of efficient technology development.”