Waiting to Notify Customers of Breach Is to the Company's Advantage

Ann All

A column by the Toronto Star's David Olive makes an interesting point about Toyota, the automaker which recently suspended production at five of its North American factories due to problems with sticking accelerator pedals in several of its most popular vehicles. While Japanese competitor Honda is known for its engineering expertise, and competitors like BMW are known for their stylish design, Toyota's reputation has been based almost solely on the quality of its vehicles.


Toyota's vehicles have dominated J.D. Power and Associates' annual studies of vehicle quality, which in 2008 helped Toyota overtake General Motors to become the world's biggest automaker. Many articles that have appeared in the wake of Toyota's recall of millions of vehicles imply that Toyota's desire to overtake GM contributed to its problems. But a Wall Street Journal article says lean manufacturing, a concept pioneered by Toyota and since emulated by many automakers and other manufacturers, also contributed to Toyota's travails. That's interesting, since many folks credit lean with helping Toyota build its reputation for quality.

 

The overriding principle of lean is centered around reducing waste, and two common ways Toyota and other automakers have done so is by using common parts and designs across multiple product lines and reducing the number of suppliers in order to procure parts in greater scale. Those these practices do help reduce waste, they also introduce risk. And not just for Toyota. The WSJ cites a recall of 4.5 million Ford vehicles in which a common component used across different models played a big part.

 

Standardizing parts and consolidating suppliers are likely to become even more common strategies as companies look to cut costs and boost efficiencies to make up for sales declines. The WSJ article notes that Sony last year created a new division to handle company-wide procurement and decided to cut its number of suppliers by more than half, measures the company says will save it 500 billion yen (US$5.5 billion). Panasonic has standardized parts across products for years to reduce costs, a practice that led to one of its biggest product recalls ever in 2007.

 

Why don't more companies incorporate risk management into their long-term strategies? IT Business Edge's Lora Bentley in November wrote about an Accenture study that found only about half of companies include risk management in their strategic planning efforts. Just 27 percent make risk management part of their objective-setting or performance-management processes.


 

In another post, Lora mentioned that creating a chief risk officer position is becoming a best practice, especially for large and highly-regulated companies. Others that haven't appointed chief risk officers are asking their CFOs to focus more on risk. I'd assume that weighing financial gains against risk would be a big part of those jobs.

 

Yoshinori Iizuka, a University of Tokyo engineering professor and former head of the Japanese Society for Quality Control, a research group studying quality-management technology, in the WSJ article advises companies to emphasize good design and adequate testing to minimize quality-control problems resulting from widely used parts. And if a problem arises, companies need to employ a manufacturing-management system to pinpoint and identify the issue, something that Toyota doesn't seem to have done with the malfunctioning accelerators.



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