Toyota’s Disrupted Global Supply Chain: COVID-19 and the Global Chip Shortage

Toyota’s supply chain, long admired as an industry benchmark for efficiency and effectiveness, was unable to supply critical parts to replenish inventory in its plants pursuant to the global chip shortages that resulted from the general disruption created by the COVID-19 pandemic. During the first quarter of 2021, the delta variant of the virus was spreading across the globe. Southeast Asia, where Toyota sourced many auto components, was particularly hard hit. As demand for automobiles was surging during the second half of 2021, a critical shortage of microchips forced Toyota and other automakers to shut down some of their assembly lines. Toyota had made several changes to increase supply chain resilience after recovering from the magnitude 9.1 earthquake and tsunami in 2011. The auto industry had never experienced a multi-year parts shortage. This was different from prior natural disasters and plant fires. In those cases, Toyota and its suppliers could rebuild their plants. Components needed to replenish assembly lines could be sourced from other geographies. The chip shortage was affecting all automakers. Assembly lines were shut down as engineers scrambled for technical workarounds. Set against this backdrop, the case focuses on options that firms might pursue in preparing for black swan events such as COVID-19.