TOKYO -- Global automakers are increasingly shifting away from traditional practices where they only keep a limited stock of key components, with the COVID-19 pandemic and international tensions stoking shortages of technology such as chips.
Companies including Toyota Motor are looking to boost chip inventories, while others are securing their own supplies of rare metals.
The U.S. has cut its exports of semiconductors to China's Huawei Technologies, making chips more susceptible to international politics. As carmakers have expanded their parts procurement networks around the world, the shortage of some components risks hindering the production of finished vehicles.
Toyota has started telling some of its suppliers to increase their semiconductor inventory levels from the conventional three months to five months. That comes after the automaker, long known for embracing a "just-in-time" supply chain in which parts are only delivered when necessary, had already revised its system in response to the March 11, 2011 earthquake and tsunami in Japan, lifting inventories across the entire procurement network.
Nissan Motor is considering boosting its inventory of semiconductors from one month to more than three months, while Suzuki Motor has asked parts makers to keep inventories for several months.
Companies are also moving to sign long-term contracts with semiconductor manufacturers lasting for several years or to try to order one product from more than one company.
The amount of semiconductors used in a single car is increasing as more controls are digitalized. According to IHS Markit, automakers' chip spending has increased threefold compared to 20 years ago. By 2030, when many more electric vehicles are on the road, the British research company expects the car industry to be spending 30% more on chips.
Meanwhile, other industries will make it even more difficult for automakers to procure chips. The development of electronic products and medical equipment is supported by chips, and these producers are already demanding ever more semiconductors.
Most automakers have been forced to cut current production, partly because chipmakers have shut down their plants due to the pandemic. The reality is forcing Toyota and other automakers to shift their focus from efficiency to stable output.
This quest for stable procurement might reach beyond semiconductors as automakers begin competing more fiercely for the materials and parts necessary to produce electric and other environmentally friendly vehicles.
Demand for rare metals used in automotive batteries is expected to be particularly strong. Some minerals are concentrated in politically unstable countries, and mines that exploit child labor have come under social scrutiny.
Volkswagen and Tesla are trying to secure interests in lithium and other metals due to the time it takes to develop a mine; sourcing these rare earths after shortages emerge will be all but impossible.
Increasing inventories and securing upstream resources will help stabilize output but reduce management efficiency.
The time it takes Toyota -- renowned for its lean, "just in time" manufacturing system, to turn over its inventory increased by around 40% during the past 10 years, to 36.36 days as of March. Seiji Sugiura, a senior analyst at Tokai Tokyo Research Insititute, said Toyota grew less efficient as it began stockpiling "chips and materials whose prices are going up."
This is not the first crisis to hit "just in time" efficiency. The big earthquake that hobbled northeastern Japan in 2011 came months before major floods sunk industrial estates in Thailand. Both disasters wreaked havoc on supply chains. In 2016, southwestern Japan suffered a series of quakes that severed supply networks and hindered the production of finished vehicles.
Unlike past disasters, the impact of the ongoing COVID-19 pandemic has been global. And it is coming at the same time as the auto market shifts to electric cars. Both of these factors are forcing companies to alter time-tested strategies.