The Automotive IndustrySupply Chain Management for Honda and Toyota

Angeerjeet Goswami - 09Ankit Maheshwari - 10Rajat Anand - 52Raveesh Verma - 54Richa Bidasaria - 56Rishi Rathi - 57

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’s Operational practices show a great example of the innovations the Japanese automobile manufacturers perform.

Honda

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 Purchasing

Honda Purchasing

Parts Supplier

Parts Supplier

Parts Supplier

Honda Trading

Raw MaterialsMill

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:

Main Plant Local PlantAssembly facility

Warehouse

Mexican Suppliers

Asian 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

The Toyota Way

JIT Logistics System

Cash to Cash: Toyota, Inventory Management and Heijunka

Both Accounting and Supply Chain professionals rely on Cash to Cash (C2C) measures to make processes more efficient and cost-effective.

C2C is generally the number of days it takes to convert the expenses for raw materials into payment for the finished product (1).

Many factors influence this, including inventory management, supplier performance, and collection of accounts receivable. In accounting, C2C is a good measurement of liquidity of the firm.

For supply chain professionals, it measures the efficiency of the entire process, from suppliers, to manufacturing, through to order fulfillment (2).

A company can take three actions to decrease the C2C cycle:

Extend average accounts payable

Reduce inventory by reducing the production cycle

Decrease average accounts receivable

Internal Structure One organization that has successfully implemented a C2C system

is Japanese automaker Toyota. Its operational success is often attributed to the focus on reduction in inventory.

The term Toyota uses for their system is “heijunka”. Translated from Japanese, it means “make flat and level.” In particular, it refers to eliminating spikes in demand, but also creating operational efficiency and reducing overall supply chain costs.

Toyota’s lean operation focuses on the idea of buy one, sell one. Toyota is able to manufacture vehicles in about the same order customers buy them . This adaptability to demand has given Toyota the advantage of carrying the least inventory in the field of Japanese auto manufacturers .

Working with suppliers

This concept is one that Toyota uses internally and it also requires of its suppliers to improve the overall C2C cycle.

In the North American auto supply market, suppliers working with Japanese-owned automakers perform at higher levels than those working with U.S. automakers.

Toyota works with U.S. suppliers to teach them the lean manufacturing techniques used in Toyota’s manufacturing facilities (4). These techniques ensure a short amount of time between when Toyota needs an item and when the supplier makes it.

Using small batch production, this short lead-time can be achieved. Rather than running large batches and keeping excess inventory, plants quickly run a small batch and keep inventory low.

For Toyota, this translates to being able to better meet customers’ demands because manufacturing facilities do not have to wait on a particular part before beginning production on a vehicle .

Benefits of Heijunka

Toyota’s improvement in its supply chain benefits the automaker in many ways:

Inventory levels at parts distribution centers have decreased by 53 percent from stocking levels in the 1980s.

Since 1994, the inventory turn of parts in the average dealership has increased from 3.7 to 5.7.

•Toyota dealerships have achieved 20 percent to 40 percent reductions in floor space utilization.

The time spent improving the systems of U.S. suppliers shows results as well.

From 1997 to 2000 alone, supplier on-time delivery increased from 76 percent to 93 percent.

Sixty-six percent of suppliers on daily order status are able to deliver within five days or less.

While inventory management is an effective way to reduce the C2C cycle, it not only requires efficient manufacturing, but also effective forecasting.

RV – Intro Honda (Honda PPT) Richa – Slides 7-15 Ankit – 16 – 28 RV – Toyota intro 29 Rajat - 30- 37 Angir – 38 - 44 Rishi – 45-50

Questions?