Toyota calculates the sum of its parts

Toyota, now in its 15th year as Australia's most popular brand, has a problem on its hands.

The company, which will shutter its Altona manufacturing plant in October, is bound to maintain a parts inventory for cars as long as 10 years after production ends.

By the time Altona closes, production over the decade is likely to exceed 300,000 cars sold in Australia alone. Double that number for export production to the Middle East and you're looking at around a million cars in need of ongoing replacement-part availability.

It's a massive commitment, and yet one that has received little attention from the press in the lead-up to plant closures at Mitsubishi in 2008 and Ford just last year. Holden's plant at Elizabeth in South Australia will cease operating the same month as Toyota's and the GM brand likely faces a similar challenge.

During the North American launch of the new, imported Camry earlier this month, motoring.com.au discussed the parts dilemma with Toyota Australia's executive director of sales and marketing, Tony Cramb. The Toyota exec revealed the inner workings of a complex project that could go horribly wrong.

A decade-long commitment
"As part of our responsibility in the Toyota world, for closure of the manufacturing operation, we have to fulfil our commitment to supply replacement parts to our customers – locally, and to the Middle East, and we have other markets that we sell to as well, like New Zealand – for 10 years," Cramb said.

"We've had a group of people – somewhere between five and seven people – that are dedicated to that task, and have been for the last couple of years, going through part by part, firstly establishing, using the drawings on a CAD-based review, if the part is in fact a global part.

"Then, all the ones that we suspect are [global], then double-checking, and making sure that they are.

"And the ones that aren't, we then have to establish sourcing, for those ones that are slightly changed. They can be very minor changes. That has to be done one-by-one."

What happens if the parts are uniquely Australian and supplied by a company based in Australia?

"There's a couple of things: Firstly, are they going to continue? That's the first big question. Is this supplier going to continue?" Cramb replied.

"If the answer to that is yes, then it's pretty straightforward. We just enter a contract for the continuity of it.

"If the answer's no, it becomes more complex. And so there's a number of options. One: All-time buy. So we go in and say: 'Okay, between now and when you close' – and we've done this with many, many companies already – 'we need you to not only build out this current model, we need you to build out 10 years' supply. And we estimate it to be this many...'.

"So it won't be 10 times every single car. There'll be an estimation made, part by part. And then we'll stick [the part production batch] in a warehouse.

"And the warehouse is huge; it's filling up by the pallet load. We've already filled a warehouse."

That warehouse is owned by a third party, says Cramb, and it's "massive". He says that being "globally competitive" is an important talking point within Toyota, where the management of parts inventory is concerned.

Ramping up parts warehousing
"We're building a brand-new parts warehouse in western Sydney," says Cramb. "In Melbourne we're in a very old part of the building [in Port Melbourne] and we're considering moving into the assembly plant [across the Yarra in Altona], and building a world's-best facility there, which incorporates all of the best practice from around the world.

"But obviously that takes investment. In the meantime, we've got to put the parts somewhere. So it's [with] an external provider. One day it will come back [in-house] and it'll be fine – and we'll put them probably in Altona, somewhere.

"We have a plan, but that's all being decided as we speak."

Cramb says that there's an additional concern in the aftermath of the Altona closure – and it's unrelated to the domestic market.

"The other thing is where we store these parts, if we do produce them – because obviously the vast majority of our parts, two thirds, are for the Middle East. So there's discussion going on about: 'Should we just send it to you?'

"All those discussions have to take place as well.

"If a part can be sourced from overseas, if it's a global part, then that's just rearranged. So that from closure, that country knows that they get that part from Japan, or Thailand or wherever the part is that's globally produced. That arrangement is clarified, documented, part by part."

Big numbers, big risks
Cramb says that the project for Toyota Australia involves "tens of thousands" of part numbers, and "part of the challenge" is to ensure those parts can be picked quickly for distribution around the country – in the event there's a run on Camry bonnets after a hail storm rolls through Sydney, as one example. Multiply those "tens of thousands" by the 300,000 or so locally-built Camrys and Aurions over the past 10 years and there's the magnitude of the task – and the potential inventory. Not all those cars will need all those parts of course, which is where the whole process becomes actuarial.

Another concern for Toyota is that the warehouse has to be a benign environment, so that parts – like electronics for instance, or rubber components – won't deteriorate over time.

Asked to quantify the cost of this project, Cramb says it's "commercial in confidence" but mentioned "tens of millions".

"It was going to be hundreds of millions," he continued, "but through the great effort of these people that are dedicated to it, they've minimised the number of parts that we had to... store.

The helpful folk of Tonsley Park
Cramb says that Toyota spoke with Mitsubishi about two years ago.

"We went and benchmarked Mitsubishi, because they had done it, and they were really giving, actually, in helping us understand the potential pitfalls – and avoid some of them.

"That was part of our learning, and like I said, they were very helpful to us and kind of guided us on what's important and what's not important.

"It's always easier after the event too – and they've been through it."

Cramb says that the engineers working on the project have a strong understanding of which parts are fast-moving and which are likely to sit on the shelf for the entire 10-year period.

"That was a process in itself, working with TMC to try and estimate that accurately, because if you muck it up, then you may not have parts in 10 years' time. And then also, you could have a shed full of them."

Holden and Ford have disposed of their new/old stock after 10 years to companies like Rare Spares in the past, but Toyota will take a different approach with parts over 10 years old, Cramb says.

"That's not usually our way; we don't normally do that. We have an obsolescence process within the company, and I'd imagine it would become part of that obsolescence process. We're obviously looking to eliminate that need over time. We won't dump 'em at 10 years – that's not the way it works. But there will be a progressive write-down as we realise, part by part, whether the demand's going to be there or not, over time.

"Eventually they get destroyed, rather than sent out into the market."