Toyota’s Takata Crisis: How Supplier Management Impacts Share Price and Reputation
When it comes to leaders in Supplier Management (SM), we often hear about automotive manufacturing companies demonstrating effective supplier performance processes and we have been fortunate to work with some of these leading companies and support them by developing these robust processes. You may have even spotted some of these companies feature as case studies in our annual SM research reports over the years including our previous work with Toyota. No matter your journey in developing SM, we tell our clients, that a number one priority should always be resilience and building a resilient supply chain, alongside ensuring there is transparency and trust with key suppliers, when this fails, there can be unintended consequences. Toyota’s repeated problems with Takata and their Airbags stark reminder of how supplier relationships can profoundly impact an organisation's brand image and ultimately shareholder value.
Toyota has recently recalled 50,000 vehicles in the US and thousands of others around the world due to issues with their airbags. Toyota has published a “Do not drive” advisory and Toyota says "if the airbag deploys, a part inside is more likely to explode and shoot sharp metal fragments". Those fragments "could cause serious injury or death to the driver or passengers," Toyota adds.
This is not the first recall, the Takata airbag problem first arose in the early 2000s, with reports of airbags rupturing and causing injuries. However, the issue gained significant attention and escalated into a global crisis in the mid-2010s when numerous deaths and injuries were linked to faulty Takata airbags. The crisis prompted one of the largest automotive recalls in history, affecting millions of vehicles worldwide. Toyota, among other major automakers, relied on Takata as a primary supplier for airbag components, thrusting the Japanese giant into the heart of the crisis.
Why should businesses care? Robust supplier network built on trust, transparency, and collaboration can shield organisations from the fallout of supplier-related crises but not only that they can prevent damages to share prices and brand perception.
The unfolding of new events in the Toyota-Takata saga, has led to Toyota’s shares falling by 4% but there is historic volatility in Toyota's share price due to the Takata crisis, negative press has been correlated to fluctuations in Toyota's share price typically in the 2% to 4% range. The Toyota-Takata saga, reflects the importance of rigorous supplier management, crisis preparedness, and proactive reputation management and the direct link between supplier management, reputation damage and shareholder value.
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Toyota weren’t going to let this run their supply chain down, they reacted quickly and effectively to new challenges, highlighting the strong supplier performance processes we see in leading automotive manufacturing companies. Toyota quickly implemented comprehensive recalls, bolstered quality control measures, and diversified its supplier base to mitigate future risks. They instigated transparent communication and proactive crisis management efforts aimed to restore consumer trust and investor confidence, albeit amid ongoing challenges, but for Toyota, this wasn’t enough to save harmful impacts to their brand reputation.
Toyota's reputation, meticulously built on principles of quality and safety, faced unprecedented scrutiny amid the Takata airbag scandals. Each report of injuries and fatalities tarnished Toyota's image, eroding consumer trust and investor confidence and no matter how proactive they reacted to implement changes it still wasn’t enough to prevent the damage to brand reputation.
Toyota's reputation suffered yet another blow with the latest news despite the significant improvements made by Toyota to tackle these supplier challenges but it brings us to the underlying problem – being prepared and ensuring resilience in your supply chain. Toyota weren’t prepared to prevent these supplier-related crises, highlighting once again the importance of supply chain resilience and trust and transparency with your suppliers.
While we weren’t party to the intricacies of the Toyota-Takata supplier relationship, we do know automotive manufacturing companies being stronger in supplier performance management, often means that supplier engagement is less of a priority and that there aren’t measures in place to facilitate effective supplier communication or processes that allow joint collaboration with suppliers to resolve problems that come along.
We’ve seen from our research that whilst automotive manufacturers have built supplier management into the culture and ways of working, they lag behind other industries in process, governance, training and technology. There is a missed opportunity to introduce more formal supplier management processes (that includes relationship management not just performance management), better define the supplier’s governance models for different supplier segments, define roles and responsibilities of all stakeholders involved in supplier relationships and implement targeted SM training to support supplier managers facilitate effective relationships alongside having support from adoption of supplier management technology.
As organisations deal with complexities of global supply chains, cultivating strong supplier relationships and upholding reputational integrity emerge as strategic imperatives for long-term success. The fallout from Toyota's association with Takata stresses the delicate balance between supplier relationships, reputation, and shareholder value. The lessons learned from the Takata crisis emphasise the need for to put resilience to the top of the agenda and invest in formal supplier management processes that uplift and protect your supply chain.
A must for all organisations managing suppliers critical to the success (or failure) of your organisation. To undertake a free benchmark of your organisation's supplier management capabilities click here or visit www.srmsurvey.com
If you would like to talk about your supplier management, please contact us at enquiries@stateofflux.co.uk.
Author: Alan Day - Chairman & Founder at State of Flux.
Co-Author: Loretta Fabiani-Laymond - Analyst at State of Flux.