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Toray's data fraud points to broader ills

Cost, time pressures fueled distortion of industry norms

Toray Industries President Akihiro Nikkaku

TOKYO -- The falsification scandal at Japanese materials giant Toray Industries typifies how a growing roster of cheaters twisted a long-accepted business practice into a shady shortcut.

Toray said Tuesday that it found 149 cases where quality data was overwritten at Toray Hybrid Cord, a subsidiary that supplies tire makers. The unit falsely delivered tire cords with 258 newtons in strength when the client ordered 260 newtons, for example -- less than 1% below spec.

The announcement cast the difference as insignificant and said no legal violations or safety issues have been found.

No customers have complained, according to Toray. The ruse also paints a sobering picture of a supplier stretching an industry practice known as tokusai past the breaking point.

Special orders

The term refers to when component makers and other customers, pressed for time, consent to procuring material falling short of agreed-on specifications, as long as there are no issues with overall quality. But Toray Hybrid Cord prioritized deadlines and cost savings to the extent that it did not even bother to flag quality disparities to customers or improve the production process as necessary.

"When products fell outside of specifications, we skipped over the step of obtaining customer consent," Toray Hybrid Cord President Nobuhiro Suzuki said.

The tampering occurred under two consecutive quality assurance chiefs, starting with one appointed in the global financial crisis year of 2008. Energy and other costs also rose under the appreciating yen and the aftermath of the Fukushima nuclear accident of 2011.

In this climate, automakers pressured component manufacturers to cut costs. The strain trickled upstream to materials suppliers, which ended up distorting tokusai arrangements.

"The West in the 1990s invested in IT, which led to automated [quality] checking, but Japan -- struggling with an appreciated yen -- was unable to invest in equipment that could prevent scandals," said Hitoshi Ochi, president of Mitsubishi Chemical Holdings.

The latest domino

Toray's scandal, echoing the revelations at Kobe Steel and Mitsubishi Materials, has prompted many calls for industrywide reforms.

"This situation wouldn't have happened if they'd followed formal tokusai processes," an employee of a midsize Japanese automaker said.

While the quality of Toray's tire cord differed by less than 1% from specifications, the head of a major domestic tire manufacturer that received the product still takes issue with being kept in the dark. "We'll have to deliberate on the acceptable norms for tokusai," the executive said.

It took a year and four months from Toray's initial discovery of the data-doctoring to Tuesday's announcement. The faulty material is known to have reached 13 confirmed customers so far, including Bridgestone, Sumitomo Rubber Industries and Yokohama Rubber.

Yokohama Rubber, notified by Toray in October, says safety testing confirms no issues.

Sumitomo Rubber reports no major deviations from baselines. Its testing has not uncovered any harm so far, though Sumitomo Rubber intends to cautiously check products moving forward.

Sick and tired

Processing rubber and other resin-based materials results in numerous cases of minor quality irregularities, according to a major automaker. So even after fulfilling the initial orders, producers often make adjustments in such areas as composition to even out the quality of the end products. But Toray continued shipments without notice of the irregularity.

The auto industry has grown exasperated with the parade of data scandals. "Procurement departments are extremely burdened by dividing time and personnel each time misconduct surfaces," an insider reported.

"I would like to consider increasing the number of spot checks in the future," a senior executive at a major tire maker said.

Even the government is chiming in. It is important for the entire industry to share investigative findings and to work to prevent similar cases from recurring, Chief Cabinet Secretary Yoshihide Suga advised.

But the scandal owes partly to the small number of domestic companies that supply tire-reinforcing materials, as well as the fixed business partnerships such an oligopoly has created. Japan's data quality scandals may well not end with Toray.

"If it comes to products falling outside of specifications by a slim margin, just like at Toray, then our products may be viewed as a problem as well," a senior executive at an autoparts maker admitted.


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