How Toyota’s Outsourcing Partner Damaged its CARE ECONOMICS or Did They?By Philip Peters

It took the tragic August 2009 death of Mark Saylor, an off-duty California Highway Patrol officer; his wife, daughter and brother-in-law to spotlight a seething problem ripping away at Toyota’s care economics.

Attention has fallen on Elkhart, Indiana based, New York Stock Exchange listed CTS Corp (CTS:NYSE) – Toyota’s key accelerator pedal supplier since 2005. CTS generates US$600-million with just under US$20 million coming from Toyota. Toyota’s stock has lost 20% in market value over the last week, and analysts project over US$ 550 million per month in loss revenues. It’s important to note that automakers book revenue when they produce and ship the vehicles to dealer lots, not when they are bought by consumers.

Is the manufacturing of an accessed faulty pedal from CTS as an outsourced partner the core problem, or is the problem fundamentally one of Toyota’s quality management? Toyota’s supplier management challenge is a classic business development analytics management problem, associated with quality control issues with a single component part – not a complex electronic item.

This week, with his traditional perfunctory bow of contrition, Akio Toyoda, grandson of Toyota’s founder, who took over as Toyota’s president last June, finally apologized about the company’s errors and pledged renewed fidelity to its customer – subjects.

We did post an apology from the company’s U.S. president, which came out last week, but the world wanted to hear the assuring voice of the Japanese King ( I guess Emperor), not its American CEO prince. Last October we discussed Toyota’s recall challenges in the  post GodOS – Saying Sorry as a Corporate Value Driver.

The accident sited above resulted from a stuck accelerator, which neutralized the breaking capability in their Lexus ES 350 on Highway 125 in California. This incident jolted Toyota’s management to finally take serious steps to get to the bottom of the break – accelerator problem affecting eight of its vehicles.

While its seductive to think of the company’s problem as a fairly recent phenomenon, reports indicate that the company had, 19 associated deaths related to sudden acceleration since 1999, received 2,000 previous complaints associated with acceleration problems and has gone through several government investigations.

Recent statements by the U.S. government appear to be satisfied with the company’s latest efforts to remedy the problem.

While Toyota by – passed GM as the world’s number one automaker in 2008, its obsessive expansion objective has come with a cost – its quality. Concurrently, Asian rivals such as Hyundai and Honda and America’s Ford have improved both their perceived and experimental scores in reliability and quality.

Once again, the Toyota story accents the singular question plaguing global financial, technology and manufacturing corporations:

What are the limits of scale in delivering consistent care quality across a global value chain?

When stated in the affirmative  its about- Consistently delivering Care Economics in a fiercely competitive landscape.

Philip Peters by Philip Peters