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.
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2004 Total Vehicle Sales
2004 Total Vechicle Sales by the Associated Press
18000000
16000000
14000000
12000000
10000000
2004 Total Vechicle Sales
8000000
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Com pany Nam e
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
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
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

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


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

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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



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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:
Local Plant
Main Plant
Asian Suppliers
Assembly
facility
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?