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A major reform of parts procurement that Honda will challenge

with two wheels
Yuri Takahashi : Toyo Economics Reporter December 24, 2009

The code name is "C8G3". A major historical reform has begun with Honda's parts
procurement.

C indicates a commuter. Honda, the world leader in motorcycles, produces 15 million

motorcycles a year. The "C8G3" is to switch 80% of the parts globally to those procured
from about 3 parts manufacturers.

There are three companies. For example, if there are 10 companies, each component
maker produces 1.5 million units, and the effect of scale is known. However, with 3 companies, the production effect
will be great with 5 million units each.

Furthermore, the three suppliers will definitely divide the region, such as China, India, and Southeast Asia. The aim
is to spread currency fluctuations and geopolitical risks. Honda says that it is possible to reduce the cost by about 20
to 30% even considering the fact that transportation costs will increase.

A sense of crisis in parts cost Declaration of revolution from Kumamoto

"Honda's paradigm shift." Masaya Yamashita, Managing Director of the Purchasing Department, affirms: This is
because Honda has long believed that it should improve the local content rate of parts in each country as much as
possible.

The advantage of local procurement is that transportation costs can be suppressed, transportation time can be
shortened, and parts inventory can be reduced. Manufacturing costs are also overwhelmingly low in emerging
countries.

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In fact, we have achieved 100% local procurement rate in China, India and Asia. In the future, he said, "For a
100,000 yen motorcycle, parts for 80,000 yen will be procured globally, and 20% will be purchased locally"
(Yamashita Managing Director). Managing factor Yamashita himself was behind the "change" that he was trying to
lower what he had raised.

Managing director Yamashita, who had been involved in purchasing, became the Kumamoto Plant Manager in 2006.
Immediately after that, it was said that he was driven by a strong concern.

Kumamoto has a small production capacity of 500,000 units, and 500 of the 3,500 employees are overseas support
personnel. Already, rather than being a mass production plant, the color of the mother plant supporting 30
motorcycle production bases around the world was strengthened. Purchased parts account for 90% of the
manufacturing cost of motorcycles. At that time, the local procurement rate of Kumamoto was 95%. However, even
if the rate itself is high, the essential cost will be higher than in emerging countries if collected only in Japan. "Thirty
children will also become independent someday. If they continue to buy high-priced parts (as in Japan), the
significance of their existence as a production plant may diminish." So I drastically raised the current price from the
mother factory. If you are a domestic parts manufacturer, you can speak Japanese, and you can fly with a single
phone and it is very flexible. However, in order to continue manufacturing in Japan, I dare to break the peaceful
order. It was a revolution declaration from Kumamoto.

Bold “sorting” to a quarter of the specifications

At the same time, the expansion of parts types was becoming a problem overseas. For example, there were 30
types of rubber grips attached to the handlebars, each with a slightly different thickness, length, material, and grip
pattern (groove). It is the result of each country continuing to fine-tune the materials, methods and shapes that are
optimal for them. However, if these inefficiencies are preserved, it will not be possible to compete with emerging
manufacturers that are expected to emerge in the future. It didn't take long for the entire motorcycle division to
respond to the Kumamoto Declaration.

Since last fall, Honda has embarked on a bold “sorting” process, reducing the specifications of each major part to
about a quarter over half a year. I reduced the grip from 30 to 7, and the engine from 25 to 10. From now on, the
work to switch the mounted parts for each car model to the remaining specifications will be in full swing. Managing
Director Yamashita, who returned to the Aoyama Honda Headquarters in 2008 as General Manager of Purchasing
Division, takes the lead.

As a matter of course, there is concern that the manufacturing bases of parts manufacturers will flow out from
Japan and other advanced countries when the “C8G3” is investigated. However, "If you stick to it and avoid
competition, it will not be a big three, but will decline," (Yamashita Managing Director).

Managing director Yamashita's head is the trade friction issue of the 1980s. When we started producing four-
wheeled vehicles in the United States, we were strongly pressured to use parts made in the United States. Honda
has a history of repulsion, saying that "QCD (quality, cost, delivery time) does not matter if it is made in Japan or
the United States." "Honda's business purpose is to deliver good things to customers cheaply. It cannot do the same
thing (as in the past US). Although it is cheap to buy from India, it can be said that only Japanese products are
bought to protect Japanese employment. Absent". At the same time, I believe that this reform should encourage
Japanese parts manufacturers to bring in innovation.

The motorcycle that sold well in the automobile crisis became the savior of Honda's profitability. Vehicles to which
C8G3 is applied will be introduced to the market one after another with a model change. Increasing the profit per
unit will further contribute to the profit side.

The world economy is worrisome. A fierce yen appreciation. The headwinds to the export industry will intensify.
Honda hopes to apply the C8G3 method to four-wheeled vehicles in the future. Honda still strongly believes in its
potential, as international partnerships such as Suzuki and Volkswagen Germany are taking place.

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