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.

2004 Total Vehicle Sales 2000000 4000000 6000000 8000000

10000000

12000000

14000000

16000000

18000000

2004 Total Vechicle Sales by the Associated Press

Com pany Nam e

To t G al In en e r dus al t M ry ot Da or s im Fo le rC r hr d ys l To e r yo t Ho a nd Ni a ss a M n az M its d a ub Hy i sh un i d Su ai ba r Su u zu ki Vo l ks k wa ia ge n BM M W er ce Vo d e l vo sBe nz Sa a Ja b gu ar La Au nd d R i ov Po er rs he

2004 Total Vechicle Sales

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 Suppliers must use just-in-time production system

Delivery


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 Honda Trading Soybean Example New Honda Ridgeline Composite Bed/Box

Extent of Efficiency in Supply Chain

 

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 High levels of Technology and knowledge Use of domestic warehouses

India: Wage Rate = 40-60 cents / hour



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

Questions?