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
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?