1. 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

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 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

18. 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

19. 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

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 = 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
Local Plant
Warehouse
Asian Suppliers
Mexican Suppliers

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?