Analysts weigh in on Toyota recall

The recent recall of millions of Toyota vehicles should be a lesson in the value of analytics and quality control, according to two analysts speaking with SCMR on the issue.

Sean Murphy -- Supply Chain Management Review, 2/2/2010

Opinions vary on whether the problems that led to millions of Toyota vehicles being recalled this week started on the drawing board in Japan or at the plants in North America.

But two analysts who spoke to SCMR today can confirm one thing: Toyota dropped the ball when it came to analyzing reports of problems in the past, reports that might have helped the company avoid such a dangerous and costly issue. Both analysts agreed that the chief lesson here for Toyota, and any other company looking to avoid similar problems, is to have tighter, more efficient analytics to better spot problems in advance.

Joe Barkai, practice director at marketing intelligence and advisory firm IDC, cited a 2008 report by the National Highway Transportation Authority, the government body that controls recalls in America. That report, he said, includes internal Toyota documents dating back to 2003, where the automaker detected an "unintended acceleration issue," which at the time had been attributed to floor mats which were not properly anchored.

This is clear proof, Barkai said, that Toyota has had problems for a long time with acceleration, but has failed to act.

"This recent Toyota incident is definitely not new," he said.

Michael Burkett, vice president of research at AMR Research, came to the same conclusion, citing the same documentation. There is clear evidence, he said, that Toyota was not processing the data from accidents and service reports properly.

"They were having difficulty correlating that information," he said. "It doesn't appear that they detected problems were arising until it came to a head."

Both analyst firms have produced detailed reports on the issue. Barkai has reproduced the IDC report on his blog. You can read it by clicking here. A summary of the AMR report is available here.

Barkai suggested one factor in the size of the recall is the very design of Toyota vehicles, which in this case, may have been too efficient for the company's own good.

"The cars are very, very similar," he said. "They use the same parts. They use the same suppliers."

As a result, Barkai said, even a minor parts-related issue could easily affect millions of cars at once. Of course, Barkai added, this same factor should have allowed Toyota to see the problem a lot sooner.

Burkett said companies looking to avoid the same mistakes Toyota has made should be examining their systems for analyzing reports and data from the field.

"You have to have some kind of closed-loop feedback," he said.

Barkai agreed, noting that reports of faulty parts can often be overlooked amid the sea of data coming into the company from design, testing, manufacturing and other areas of the company.

"Sometimes it's hard to see the pattern through all the noise," he said.

Better analytics tools, Barkai said, could help Toyota and other companies crunch the numbers.

"They can discern patterns the human eye cannot," he said.

As to how Toyota, a company with a supply chain philosophy so well-respected it has introduced the term "lean" into the corporate lexicon, could make such mistakes, Barkai suggested the problem is in America. Citing conversations he has had with Toyota executives in the past, Barkai said he believes Toyota became too focused on competition with Detroit, at the expense of quality control.

"It's the only explanation," he said. "It's mundane, and not the Toyota way, but that may be it."

Burkett, who acknowledged he didn't have any direct inside information on Toyota's business practices, disagreed. So far, Burkett said the facts coming from Toyota suggest that the recall is due to a part failure. Burkett said all signs point to this being a design issue, not a manufacturing one, which means the problem did not originate here.

"It's designed in Japan, and the part is built in North America," he said.