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Quote - The "Just in time" programs are a prime example of when marketing people ...
FH1
Wise words Smitty1_#2; if only more firms thought and acted like yours this ...
Nissan blames IC vendor for abrupt production halt
Junko Yoshida
7/13/2010 10:06 AM EDT
TOKYO – Nissan Motor’s unexpected production halt sure looks like the ultimate supply chain screw-up, resulting in nightmares for OEMs.
Hitachi’s delay in delivering engine control units (ECUs) also illustrates the market reality that many chips continue to be produced and distributed on an allocation basis.
This dilemma also sounds the alarm for companies who have shifted chip manufacturing to foundry giants like Taiwan Semiconductor Manufacturing Co. whose capacity is maxed out.
Nissan Motor Co. announced here that it is suspending production lines at four of the company’s five domestic assembly plants for three days starting Wednesday, July 14th, because ECUs supplied by Hitachi Ltd. won’t arrive in time.
The abrupt production suspension will cost the Japanese automaker its output of 15,000 cars.
Hitachi, obviously insisting that such glitches will not become habitual, claimed that the ECU delivery delay was caused by a shortage of one of the key ICs used inside its ECU.
While Hitachi is not naming names as to its chip supplier, the Japanese company acknowledged that it’s been dependent on a single source.
It's not Renesas
One Japanese industry source told EE Times that the said semiconductor supplier for Hitachi’s ECU is “a foreign-based chip vendor.”
Renesas, a Japanese chip vendor originally created by Hitachi’s semiconductor division and that of Mitsubishi, which recently merged with NEC Electronics, offers a broad range of automotive chip solutions including control systems such as powertrains that control exhaust and electric vehicle cores in ECUs. However, a Renesas spokesperson, when contacted, said that their ICs are not used in the Hitachi ECUs supplied to Nissan.
The lack of ECU inventories that has triggered Nissan’s production suspension is an ironic turn of events for a Japanese auto industry that prided itself on “just-in-time” (kanban) system originally developed by Toyota.
Yasuhiko Honda, Hitachi’s executive managing director, said during the Nissan/Hitachi joint press conference: “We were informed by our semiconductor supplier of the sudden decline of a specific IC chip supply. The chip vendor, however, has yet to tell us what’s going on.”
While the executive noted that the tighter supply and demand in the current semiconductor market may have been the issue behind all of this, he added, “We don’t know for sure yet.”
The shortage of the chip has left Hitachi no choice but to delay ECU delivery. Those affected by Hitachi’s ECU in question are Nissan and two other Japanese automakers. Hitachi declined to name the two automakers, but confirmed that a majority of its supply is for Nissan.
Sourcing a specific IC from a single chip vendor is not uncommon among automakers, who are always seeking cost advantages. Nissan claims it will restore its normal production-level next week.
Meanwhile, Toshiyuki Shiga, Nissan’s COO hinted that a problem in procuring an ECU from Hitachi could spread to North America and disrupt production there, reported the Wall Street Journal.
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selinz
7/13/2010 11:01 AM EDT
There is no indication about the cause but the automotive market is much more sensitive to quality and reliability than other markets since system failures have much more dire consequences. Like Toyota in recent months (and unlike certain unnamed smart phone), it is possible that quality/reliability led to this decision. Nissan would do well to spin this as "better caught now than later."
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daleste
7/13/2010 11:04 AM EDT
Supplying components to the automotive industry is a tough job. The quality has to be perfect and the supply has to meet the demand. The volumes can be huge and the product life can be very long. But you can never shut down a car line. This can affect many years of future business and incur monetary penalties. You can bet that the supplier at fault is working around the clock to remedy the situation.
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junko.yoshida
7/13/2010 11:11 AM EDT
You have a point, selinz. The automotive industry is very sensitive to quality issue.
It would be fascinating if this has anything to do with any quality, reliability issue of Hitachi's ECU.
However, as a reporter of the story, I actually don't think so.
Executives at the joint Hitachi/Nissan press conference made it clear that this is an issue of the component shortage. Translation: whoever this chip vendor is, that IC supplier is on allocation by a foundry.
The company obviously can't produce enough chips (that must go inside Hitachi's ECU) to satisfy its big-time customer like Nissan.
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pixies
7/13/2010 11:19 AM EDT
On the flips side, if TSMC's capacity is maxed out, it means that the semiconductor industry and the general economy are in for a boom time.
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junko.yoshida
7/13/2010 11:48 AM EDT
Yes, that's a good thing! It is reflected in many chip vendors' good performances in the last several quarters.
However, this is also problematic to some chip vendors. Your ability to secure the capacity at foundries becomes much more important. You will be spending more time in managing your customers' expectations. And imagine the efforts it takes for them to restore relationships with their important customers!?!
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Kiran_NSN
7/13/2010 12:46 PM EDT
I think there are so many suppliers available to produce the critical ICs used in the engine control units of the automotive. But it is definitely not an easy thing to have a second source for such component. I think Hitachi never expected this shortage. This again reminds me of the recent article printed in EE Times about the growth of the automotive makers in the recent times. More more and more cars - The IC foundries are maxed out!
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dirk.bruere
7/13/2010 3:15 PM EDT
JTL - the opposite of JIT
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FH1
7/13/2010 9:45 PM EDT
Hi Junko ... this is exactly the problem we have been warning the industry about for the last several years ... a snafu waiting to happen ... but everyone said we were stupid! Now the first serious snafu has happened, and it won't be the last, maybe the industry (chip makers and OEMs) will start to wake up, but I doubt it. This should be a warning shot for all of the fablite proponents ... from TI down. Fablite is a bean counter's illusion; lose control of your fab and you lose control of your wafers; lose control of your wafers you lose control of your chips; lose control of your chips your custonmer loses control of their business. Whatever happened to security of supply? It's one thing to have to pay a higher proce for your wafers from a foundry, that just hits your margin; it's another matter entirely when you don't get your chups at all, or they are late ... that hits your sales and your custromer's sales. Time fpr an industry wake up call ... fablite is dead, the IDM 'dinosaurs' will survive, unless they commit suicide by slow strangulation ... which some already have :-)
Malcolm Penn
Chairman & CEO
Future Horizons
incident will not be the last
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AliNS
7/13/2010 11:57 PM EDT
Well, I'm not sure why this is such a big deal. Of course it is to Nissan and I understand. Line downs happen all the time in the industry, but most OEMs, unlike Nissan, won't admit to it.
Firstly, I don't understand why they can't develop a second source. It doesn't make any sense. I work with a lot of OEMs and most of them won't even work with you if you won't provide a second source and in case there is technically no way to enable a second source, the OEM will still develop a compatible solution with another supplier. I would understand ACME garage doors can't afford this approach, but Nissan? Of course, if the volume is lower per supplier, the cost may go up a little, but Nissan has a formidable buying power and should be able to negotiate an optimal deal nevertheless.
Last but not least, there are ways of managing buffer inventories, in case there really is NO way to have a second source and that you MUST utilize a specific IC vendor.
This has nothing to do with IDM vs. fabless, I know a lot of IDMs that go on allocation too.
I hope they fix this problem before they start the Leaf production as I'm on the wait list!
Ali Erdengiz
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EE.Mod
7/14/2010 1:43 AM EDT
anyone remembers the overstocking chip inventories back in 2001 that led to chaos?
since then no one dares to keep excess inventories and almost all rely on JIT deliveries. that means any small glitch at either side (vendor or customer) and poof here it goes the production line.
ICs are so inexpensive these days that I am wondering why neither HITACHI or NISSAN made a very small investment to stock their 3 days needed material?
wouldn't that worth their business relationship and production loss, sure it would.
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numberone2
7/14/2010 1:58 AM EDT
So Nissan/Hitachi had to learn the hard way about designing with Maxim. No big deal, we've all made that mistake once.
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junko.yoshida
7/14/2010 6:43 AM EDT
It is now widely reported that STMicroelectronics was the one to be blamed for causing Nissan's production suspension.
Suspecting that might be the case, my colleague Peter Clarke got in touch with ST yesterday. Peter is sharing ST's comment in his opinion piece:
"Lessons unlearned and Nissan's pigeons"
http://new.eetimes.com/electronics-news/4204521/Opinion-Lessons-unlearned-Nissan-pigeons
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Hi Freq
7/14/2010 9:14 AM EDT
Not so fast ! Nissan would not be the first manufacturer to provide poor forecasts to their suppliers. If Nissan did not provide a forecast for at least a period of time that exceeds the lead-time of the part, then they shot themselves in the foot !!
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goafrit
7/14/2010 9:23 PM EDT
I hope they are not making an excuse. The reality is that the On Demand or Just in Time manufacturing that is used by the Asian firms has negatives. It can kill a supplier chain if there is a problem somewhere. Depending on external vendor to deliver within small time window in this age will remain unreliable if you want quality. Ask Toyota, they will tell you that they pushed so much pressure to parts makers to deliver under tight time conditions.
This industry is well regulated and it is unique. They must own up that Just in Time carries risks and must work and evolve that process. There is risk in all these management philosophies and nailing your supply in the press may not be a smart idea.
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goafrit
7/14/2010 9:24 PM EDT
I hope they are not making an excuse. The reality is that the On Demand or Just in Time manufacturing that is used by the Asian firms has negatives. It can kill a supplier chain if there is a problem somewhere. Depending on external vendor to deliver within small time window in this age will remain unreliable if you want quality. Ask Toyota, they will tell you that they pushed so much pressure to parts makers to deliver under tight time conditions.
This industry is well regulated and it is unique. They must own up that Just in Time carries risks and must work and evolve that process. There is risk in all these management philosophies and nailing your supply in the press may not be a smart idea.
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Paua
7/14/2010 9:25 PM EDT
This is why we encourage GF and Samsung to compete with TSMC.
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INIC
7/15/2010 6:24 PM EDT
Unfortunately this issue was created by ST Micro reported by Nikkie newspaper. This could have been an assembly related issue, hard to judge who is the blame.
Word of wisdom for Hitachi, maintain few months of buffer levels. Small price to pay not to have bad publicity and major cost of line down penalty.
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Smitty1_#2
7/19/2010 12:57 PM EDT
The "Just in time" programs are a prime example of when marketing people are given too much authority. Components can't be designed in because either there are no samples available or no small quantities available for prototype production. Lead times are sometimes over a year and the end result is that the component manufacturer has to lay people off because no one is willing to do business with them. That really helps the economy, right? Then there is always the knee jerk response to a down economy. My company suffered some layoffs but generally kept production moving and avoided the ridiculous lead times that chase away your customers. We just sat it out and tried to ignore it as best we could. The result is that we have ridden it out far better than most. My last quarterly profit sharing was 10% and we gained considerable market share. Trying to cut costs is fine, but don't let marketing "experts" shoot you in the foot. How fast do think ST will be designed out in the next revision. My company is just waiting.
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FH1
7/19/2010 1:54 PM EDT
Wise words Smitty1_#2; if only more firms thought and acted like yours this industry would be in a lot better shape. As for the business model issue, management seems to forget sales and profits are diagnostic ... they come from doing the right things, not be adopting the latest Business School / Industry whim. Sound;s like your firm has it's feet firmly on the ground.
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StevePxxxxxxxxxxxxxxxxxx
8/2/2010 12:13 PM EDT
Quote - The "Just in time" programs are a prime example of when marketing people are given too much authority. -
Not even close to the truth.
JIT is a scheme between purchasing and finance.
If marketing is involved it is just delivering the message.
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