"The Automotive Industry
Supply Chain Management for Honda and Toyota
Angeerjeet Goswami - 09 Ankit Maheshwari - 10 Rajat Anand - 52 Raveesh Verma - 54 Richa Bidasaria - 56 Rishi 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
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 Parts Supplier Raw Materials Mill Honda Trading
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) Price table for parts If price cannot be met, Honda will work with supplier to get costs down
“Target pricing”
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.) Most important factor Must be built into production process
Quality
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 Suppliers must use just-in-time production system
Delivery
Q.C.D.D.M cont’d
Development
Uniqueness in design and specifications Helps create identity for Honda Positive attitude Measured by Q.C.D.D Grade cards for suppliers
Management
Feedback
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 Honda Trading “Soybean Example” New Honda Ridgeline Composite Bed/Box
Extent of Efficiency in Supply Chain
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 High levels of Technology and knowledge Use of domestic warehouses
India: Wage Rate = 40-60 cents / hour
Mexico: Wage Rate = $2-$3 / hour
Landed Cost is the ultimate cost factor: Logistics is key
Complete Supply Chain:
Main Plant
Local Plant
Assembly facility
Asian Suppliers
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
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 costeffective.
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
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