The Automotive Industry

Supply Chain Management for Honda and Toyota

Angeerjeet Goswami - 09 Ankit Maheshwari - 10 Rajat Anand - 52 Raveesh Verma - 54 Richa Bidasaria - 56 Rishi Rathi - 57

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.

The Market Today

In the past few years, General Motors, Ford, and

DaimlerChryslers 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
Hondas 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 Purchasing Purchasing Parts Supplier
Honda Trading Parts Supplier Parts Supplier

Raw Materials Mill

Parts Supplier Parts Supplier Parts Supplier

Honda Assembly Plant Honda 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 companys 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) Price table for parts If price cannot be met, Honda will work with supplier to get costs down

Target pricing

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.) Most important factor Must be built into production process

Quality

Q.C.D.D.M contd
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 contd
Development

Uniqueness in design and specifications Helps create identity for Honda Positive attitude Measured by Q.C.D.D Grade cards for suppliers

Management

Feedback

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 Manufacturing Facility (60%) Local Manufacturing 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

Use of domestic warehouses

Mexico: Wage Rate = $2-$3 / hour

Landed Cost is the ultimate cost factor: Logistics is key

Complete Supply Chain:

Main Plant
Local Plant

Assembly 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

The Toyota Way

JIT Logistics System

Cash to Cash: Toyota, Inventory Management and Heijunka

Both Accounting and Supply Chain professionals rely on Cash to

Cash (C2C) measures to make processes more efficient and costeffective.

C2C is generally the number of days it takes to convert the expenses

for raw materials into payment for the finished product (1).
Many factors influence this, including inventory management, supplier

performance, and collection of accounts receivable. In accounting, C2C is a good measurement of liquidity of the firm.
For supply chain professionals, it measures the efficiency of the entire

process, from suppliers, to manufacturing, through to order fulfillment (2).

A company can take three actions to decrease the C2C cycle:

Extend average accounts payable Reduce inventory by reducing the production

cycle
Decrease average accounts receivable

Internal Structure
One organization that has successfully implemented a C2C system

is Japanese automaker Toyota. Its operational success is often attributed to the focus on reduction in inventory.
The term Toyota uses for their system is heijunka. Translated from

Japanese, it means make flat and level. In particular, it refers to eliminating spikes in demand, but also creating operational efficiency and reducing overall supply chain costs.
Toyotas lean operation focuses on the idea of buy one, sell one.

Toyota is able to manufacture vehicles in about the same order customers buy them . This adaptability to demand has given Toyota the advantage of carrying the least inventory in the field of Japanese auto manufacturers .

Working with suppliers

This concept is one that Toyota uses internally and it also requires of

its suppliers to improve the overall C2C cycle.

In the North American auto supply market, suppliers working with

Japanese-owned automakers perform at higher levels than those working with U.S. automakers.

Toyota works with U.S. suppliers to teach them the lean manufacturing techniques used in Toyotas manufacturing facilities (4). These techniques ensure a short amount of time between when Toyota needs an item and when the supplier makes it.

 Using small batch production, this short lead-time can be achieved.

Rather than running large batches and keeping excess inventory, plants quickly run a small batch and keep inventory low.
For Toyota, this translates to being able to better meet customers

demands because manufacturing facilities do not have to wait on a particular part before beginning production on a vehicle .

Benefits of Heijunka
Toyotas improvement in its supply chain benefits the

automaker in many ways:

Inventory levels at parts distribution centers have

decreased by 53 percent from stocking levels in the 1980s.

Since 1994, the inventory turn of parts in the average

dealership has increased from 3.7 to 5.7.

 Toyota dealerships have achieved 20 percent to 40

percent reductions in floor space utilization.

The time spent improving the systems of U.S. suppliers

shows results as well.

From 1997 to 2000 alone, supplier on-time delivery

increased from 76 percent to 93 percent.

 Sixty-six percent of suppliers on daily order status

are able to deliver within five days or less.

While inventory management is an effective way

to reduce the C2C cycle, it not only requires efficient manufacturing, but also effective forecasting.

 RV Intro Honda (Honda PPT)

Richa Slides 7-15 Ankit 16 28

RV Toyota intro 29
Rajat - 30- 37 Angir 38 - 44

Rishi 45-50

Questions?