The Automotive Industry Supply Chain Management for Honda and Foreign Automakers

1. The Automotive IndustrySupply Chain Management for Honda and Foreign Automakers Billy Brown, Bridget Lawson, Dev Shah, Jason Smeak, and Craig Taylor

2. 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.

3. 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

4. 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.

6. 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.

7. Honda • Honda’s Operational practices show a great example of the innovations the Japanese automobile manufacturers perform.

8. 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

9. 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

10. Honda Supply Chain • Honda uses their economies of scale by working with their parts suppliers to order raw materials in large quantities.

11. Example Honda Supply Chain Parts Supplier Honda Purchasing Honda Purchasing Honda Trading Parts Supplier Parts Supplier Raw Materials Mill Parts Supplier Honda Assembly Plant Parts Supplier Honda Assembly Plant Parts Supplier

12. 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

13. 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

14. 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)

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. Foreign Automakers Share A Similar Philosophy • Customer Service is key • Provides more predictable demand schedule • Allows for a stronger relationship with Suppliers

22. Keys to achieving Cost Effective Customer Service • Monopsonistic Purchasing Power • Strong Financial Health • Able to ask more from Suppliers • Understanding of global Economic environment

23. 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.

24. Postponement • The Suppliers have practiced postponement, in order to minimize localized investment. Main Manufacturing Facility (60%) Local Manufacturing facility (40%)

25. 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

26. Complete Supply Chain: Assembly facility Main Plant LocalPlant Warehouse Asian Suppliers MexicanSuppliers

27. 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

28. 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

29. Questions?