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
6000000
4000000
2000000
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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 Parts Supplier
Honda Trading
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
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: 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?