Billy Brown, Bridget Lawson, Dev Shah, Jason Smeak, and Craig Taylor 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.

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 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

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 Quality 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 Delivery 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 Management Feedback 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 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 Mexico: Wage Rate = $2-$3 / hour Use of domestic warehouses Landed Cost is the ultimate cost factor: Logistics is key

Complete Supply Chain: Assembly facility Main Plant Local Plant Warehouse Asian Suppliers 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?