Takata Nightmare Teaches Supply Chain Lessons

The Takata nightmare continues. It's been years, and still no definitive word on what's causing its air bags to explode and spray shrapnel into passengers. The defective bags have been linked to six deaths so far. The most recent one, in late January in Texas, involved a Honda that had been recalled but not yet repaired.

A cutaway of a steering wheel with an air bag. Source: Alexauto321/Wikkimedia Commons

A cutaway of a steering wheel with an air bag. Source: Alexauto321/Wikkimedia Commons

Although Takata tries to say as little as possible, the company has reported that the problem probably involves the age of the air-bag inflator, exposure to humidity and “potential” manufacturing problems. What those manufacturing problems are, we don't know. Takata's customers, the automotive companies, want to find out. Ten of them formed a group two months ago to conduct a joint, independent probe. But as of mid-February they had not even hired an outside engineering firm to start. Meanwhile, Honda engineers are breaking apart the old inflators the company has replaced in recalls, trying to figure out the problem.

There are so many things wrong in this scenario that it's hard to know where to start. Someday, an academic will write a case study on the lessons it holds for supply chain managers. On the surface and without knowing all the details (since the companies are not saying much), I see three key learnings.

Quality control and inventory tracking systems are critical, both in your operation and in your supplier's.

One of the most frustrating aspects of the Takata recall has been how it has dragged out. It started in 2012 with a recall by several Japanese automakers and BMW over the defect. In mid-2014, Toyota expanded its recall by 2.3 million vehicles. Then, in the fall, further recalls were announced by Toyota, Honda, Nissan, Mazda, Ford, Chrysler and BMW.

By the latest tally, that's about 25 million vehicles. Once the defective part was identified, how is it that Takata and its customers were unable to identify the correct models and years to recall? Takata has admitted it failed to keep good quality control records, making it harder to know which parts went into which cars. Shouldn't the buyers have insisted on good records? Were there no audits of this supplier's operations? Why weren't there tracking systems that could trace a particular component to a particular make and model of car?

The rolling recalls have damaged auto companies' reputations, which is likely hitting their bottom lines and benefitting their competitors'. I bought a new car last fall, but not from any of the companies involved in the recalls. How could I be sure there wouldn't be another recall in a few months?

Pay attention to warning signs, especially the flashing, red, neon ones.

Long before the air bags, there was evidence that Takata did not pay attention to quality. In the 1990s, nine million cars were recalled because of faulty Takata seatbelts. Why did so many major car companies continue to use this supplier? It is not the only maker of airbags. In fact, the company has only 20 percent of the air bag market, according to the New York Times. The other major suppliers are Autoliv, with 35 percent and TRW Automotive, with 20%.  Honda is reported to be looking at other sources, and I suspect the others are as well.

However, it may be hard to know where to turn. In late January, the National Highway Transportation Safety Administration announced another recall of over two million cars that used an electronic component from TRW Automotive. This defect is apparently unrelated to the Takata defect, but it will further damage the brand reputation of car makers.

“If you own an affected vehicle, this means driving around with the knowledge your air bag might still randomly deploy,” said Karl Brauer, a senior analyst at Kelley Blue Book in an interview. “And just to keep it interesting, some of these vehicles are equipped with Takata air bags, meaning the random deployment could include metal shrapnel. What a mess.”

Pick a supplier that's committed to transparency.

Takata's lack of an adequate explanation and continued tight-lipped stance has exacerbated the problem and prompted frustration – for consumers, for regulators and for the car companies themselves. In fact, the NHTSA in late January launched a hotline to encourage whistleblowers to come forward.

Several former Takata employees have already talked to the press. Mark Lillie, who worked at a U.S. Takata plant and is now retired, said he warned the company about using a volatile chemical propellant in the air bag inflators. “I literally said if we go forward with this, someone will be killed,” Lillie told Reuters. “I couldn't in good faith pump this stuff out believing that it was unsafe to put in front of a passenger in a car.”

There's nothing new or revelatory about these three lessons. They are standard best practices. Perhaps the biggest lesson of all is that even the largest procurement organizations can ignore or forget these best practices. What's amazing is that the procurers at all of the major auto manufacturers did. And now, these companies and the auto industry as a whole are paying a high price.

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