The Automotive Industry

Supply Chain Management for Honda and Foreign Automakers

Billy Brown, Bridget Lawson,

Dev Shah, Jason Smeak,
and Craig Taylor
The Automotive Industry
 The Automotive industry is
one of the largest industries
in the United States
 New and used automotive
sales and repairs generates
over $200 billion dollars of the GDP each year.
 New car and light weight truck sales generated
$699 billion dollars in revenue in 2003.
Trends in the Industry

 Traditionally, domestic manufacturers

have dominated the market in the United
States.
 The top three domestic manufacturers
include:
 General Motors
 Ford
 DaimlerChrysler
Trends in the Industry
 In recent years, these
top domestic manufacturers
have concentrated on the
market for sport utility
vehicles and light trucks.
 This narrow concentration
has allowed foreign manufacturers, primarily
Japanese manufacturers, to steal some of the
market share for cars.
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The Market Today
 In the past few years, General Motors, Ford, and
DaimlerChrysler’s market share for cars has been cut in
half.

 While domestic manufacturers still dominate their foreign

competitors, the Japanese market share of cars is
growing.
 Consumers are choosing Japanese cars over domestic
because of their competitive price, and high quality
reputations.
 These advantages are results of a very organized and
innovative way of doing business.
Honda
 Honda’s Operational practices show a
great example of the innovations the
Japanese automobile manufacturers
perform.
Operational Strategies
 Careful site selection of their US manufacturing
plants
 Greenfield Manufacturing Plants

 In- depth supplier relationship

 Close and interactive, similar to a
partnership
 Autonomic organizational structure
 Japanese/North American manager mix
 New entrants focus on more established
products and processes
Honda Purchasing

 Suppliers are involved with development

and design of new products
 Relationship is much like a partnership
 Requires an in-depth supplier selection
process
Honda Supply Chain

 Honda uses their economies of scale by

working with their parts suppliers to order
raw materials in large quantities.
 Example Honda Supply Chain
Honda
Honda Parts Supplier
Purchasing
Purchasing Honda Trading
Parts Supplier

Parts Supplier

Raw Materials Parts Supplier Honda

Mill Assembly
Plant
Parts Supplier
Honda
Parts Supplier Assembly
Plant
Structural Characteristics

 Also known as executional drivers that

reduce operating costs and increase
productivity
 Economy of Scale – All purchasing done
by Honda Trading America Corp.
 Technology – Multipurpose machinery
 Capacity Utilization – Honda operates
facilities in every major market they enter
Market Characteristics

 IT advancements
 3rdwave distribution software by Blinco
Systems
 Assures parts quality, controls availability,
guarantees delivery, provides consistent
materials pricing
 External factors
 Increasing oil prices effect transportation
costs for all markets
Competitive Characteristics

 Strategic and operational variables that

must be factored into the design of a
company’s global value chain
 Global value chain
 Demand chain (marketing, sales, service)
 Supply chain (sourcing, manufacturing,
logistics)
 Product development (R&D, design,
engineering, development, and launch)
Supply Chain Characteristics

 The key element for Honda is the flow of

information with their suppliers
 12 steps:
 Initial
contact, preparation/investigation of
Honda parts, quotations, initial plant visit,
prototype development, testing and
evaluation, mass production quotation,
preparation for mass production, trial run,
Quality Assurance Visit, agreement, purchase
order
 In-house guest engineers
Company Specific
Characteristics
 Strategic sourcing – “maximizing the
value added through your external
suppliers”
 Will chose highest supplier in overall
service (not just lowest price)
 “Target pricing”
 Price table for parts
 If price cannot be met, Honda will work
with supplier to get costs down
Q.C.D.D.M

 Customer Satisfaction is top priority

 Accomplished through suppliers
competitiveness in quality, cost, delivery,
development, and management
(Q.C.D.D.M.)
 Quality
 Most important factor
 Must be built into production process
Q.C.D.D.M cont’d

 Cost
 Suppliers are given target costs
 Cost reductions through own ideas,
technology, improved productivity, along
with joint efforts with Honda in value
engineering, and value analysis
 Delivery
 Suppliers must use just-in-time production
system
Q.C.D.D.M cont’d

 Development
 Uniqueness in design and specifications
 Helps create identity for Honda
 Management
 Positive attitude
 Measured by Q.C.D.D
 Feedback
 Grade cards for suppliers
Honda Quality and Efficiency
 Quality and Continuous Improvement
 Employee Driven “Kaizen”
 “Quality Circles”
 “Domestic Trouble Reports” (DTRs)
 MRP II and Web-based Ordering for
Supplier Base as a whole
 Extent of Efficiency in Supply Chain
 Honda Trading “Soybean Example”
 New Honda Ridgeline Composite Bed/Box
Foreign Automakers Share A
Similar Philosophy
 Customer Service is key
 Provides more predictable demand
schedule
 Allows for a stronger relationship with
Suppliers
Keys to achieving Cost
Effective Customer Service
 Monopsonistic Purchasing Power
 Strong Financial Health
 Able to ask more from Suppliers
 Understanding of global Economic
environment
Able To Get More Out of
Suppliers
 Toyota- Dedicated Manufacturing
Facilities
 Nissan- Supplier Parks
 Suppliers willing to do so because of
Foreign Automakers’ Financial Health.
 Postponement

 The Suppliers have practiced

postponement, in order to minimize
localized investment.
Main Local
Manufacturing Manufacturing
Facility (60%) facility (40%)
 Foreign Sourcing

 China: Wage Rate = 20-30 cents / hour

 Poor Industrial part output
 India: Wage Rate = 40-60 cents / hour
 High levels of Technology and knowledge
 Mexico: Wage Rate = $2-$3 / hour
 Use of domestic warehouses

Landed Cost is the ultimate cost factor: Logistics is key

 Complete Supply Chain:

Assembly
Main Plant Local Plant
facility

Asian Suppliers Warehouse

Mexican Suppliers
Forecasting Is Key

 Demand for Suppliers is Derived

 High Customer Service Levels
 Very Important for Foreign Suppliers
 A Lot of Statistical Information
 Overall Unit Movement
 Supplier Specific Unit Movements
Comparison With Domestic
Automakers
 More of a collaborative relationship
 High levels of information sharing
 Better information
 Lower inventory levels
 The financial health of Suppliers is
extremely important
 Sharing of Financial prosperity & follies
Questions?