Toyota and other automakers were hit hard by parts shortages because they failed to obtain visibility of their supply chains beyond tier-one suppliers, says Alkis Vazacopoulos, teaching associate professor in the Online Masters of Science in Business Intelligence and Analytics program at the Stevens Institute of Technology.

In the early months of the microchip shortage now plaguing automotive manufacturers, Toyota fared better than most because it had purchased additional inventories years ahead of the crisis. But the advantage of having made that far-seeing move didn’t last. The effects of the COVID-19 pandemic, including interrupted production lines, inadequate supplies of parts and components, and surging customer demand, caught up with the automaker, which announced a 40% cut in vehicle production in September.

The reason, says Vazacopoulos, was a failure by Toyota and others to acquire visibility of tier-2 suppliers and others further up the chain. At the same time, a long-time over-reliance on minimizing standing inventories through a just-in-time approach to feeding the production line left them vulnerable to the effects of supply disruption. “They don’t understand their supply chain,” he adds. “That’s a major mistake.”

It’s more than a matter of too few microchips. Automakers are burdened by legacy applications, having failed to undertake a major investment in supply-chain software over the last decade, he says.

There’s no quick fix available to the industry; it will likely take years to fix the problem, Vazacopoulos says. The situation will only get worse with the increasing popularity of electric vehicles, which require more of the chips and batteries that are currently at such a premium.

The key to long-term success — and avoiding situations such as the one currently bedeviling the industry — lies in embracing a risk-management mentality that considers the entire supply chain, and is able to withstand the impact of future disruptions.