Executive report of key results of recent research on supplier development strategies and outcomes
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- Navigate this page:
- Honda International Purchasing Division
- Suppliers’ Design Capabilities
- Supplier Selection Process (New Country)
- Kyoryoku Kai (Cooperative Associations)
- Creating Competition – Core Competencies
- How to Develop Global Suppliers
- Improving Communication between Honda in the Four Major Trade Zones
- The biggest challenge is how to improve communication and develop relationships across Honda in the four trade zones.
- The World Car – Global Planning Strategy
- Honda America Mfg. (HAM)
Supplier Development Process The general sequence of events in supplier development is as follows:
When discussing particular situations when supplier development did not go well, Dave noted that a big part of the BP supplier development teams involves choosing the right people at the supplier to be part of the improvement team. It is important to get senior management approval, but maybe not a good idea to get a senior person specifically involved on the team. What they have found is that when a senior person is on the team, people will go along with whatever they want. Ideally, Honda wants someone who is not senior, but who will nevertheless be missed (“someone who will hurt you”) when they are part of the team. They must also be a full time member of the team. When discussing resources invested in suppliers, he mentioned engineering support as a big factor. In some cases, they will own a percentage of the supplier for capitalization purposes, and allow them to pay back the investment over time. This is used in cases when a critical supplier requires help. They generally do not invest directly in equipment (“we are not a bank”). Dave discussed a situation in a small town when a local supplier had a welding system that drained the local power supply. All of the lights in the town went down. Honda sent a team of engineers to help them understand the step-down functions in order to better handle the load and avoid unhappy citizens! In another case, Honda sent four purchasing people to a small supplier to help rebuild their infrastructure for growth. The company had experienced growing pains due to increased volume from supplier, resulting in delivery and quality problems. The purchasing people spent 6 months with the supplier living in temporary apartments, and solved the problem. In another case, a small supplier was also not ready for mass production, and Honda sent 50 people (including management and support staff) to work at the supplier’s location for 12 weeks. This cost millions of dollars in lost time. Today, the supplier is one of the better suppliers of Honda. Dave noted that supplier development requires tracking the low hanging fruit to get the early wins and gain momentum, but that in general this is a long-term business strategy. The strategy must adopt a continuous improvement focus; otherwise it will not be successful. Honda International Purchasing Division At Honda, all domestic buyers are responsible for both domestic suppliers and overseas purchasing. The IPD is responsible for coordination between Honda Corporation and its overseas plant. When Honda launches a new model, the purchasing activity actually starts two years before the release of the vehicle. It is at this time that the quality, cost, and delivery criteria are evaluated. Obisan was assigned to the UK before the plant opened, and was responsible for recommending suppliers to R&D. In developing local suppliers (no matter what country – US, UK, or Brazil), Obisan notes that the same basic approach is used globally. This consists of using existing drawings for the models to be built at the new plant (never use new drawings!), and try to get the best available alternative from a domestic supplier. In approaching the new supplier with the “old blueprints”, quality and engineering capability are the most important criteria to consider (although the lowest price of course plays a role). Once a potential supplier is selected, Quality and R&D people visit all potential suppliers, and a final decision is reached. When a new drawing is issued, quotes from 2, 3, or 4 suppliers may be obtained, than a final quote based on a more refined drawing is asked for, followed by final supplier selection. In attracting good suppliers, it is emphasized that they also get the opportunity to buy the part from a Honda parts dealer, study it, and come to us and see if you can produce it. In this manner, Honda is always looking for better suppliers who can produce parts locally! Single/Dual Sourcing Honda suppliers are always subject to competition. In most cases, a parts contract will last for the life of the vehicle (4 years), with each part being single sourced. The new Accord has just been launched, and the next vehicle in the pipeline is the Civic 2001 model change. Dual sourcing is used in some cases when delivery problems occur. Because orders are based on forecasts, a dual source may involve using a Japanese supplier and an overseas supplier to produce the same part. This is to avoid a potential situation where there may not be enough capacity with a single supplier. A good example of this is the headlamp. The exterior of the headlamp is similar for the French and Japanese supplier, but the reflection mechanism is different in the interior. The French model uses a higher grade material, so the item is dual sourced. The headlamps are essentially interchangeable, but differ slightly in their structure. Recently, Renault came to benchmark Honda. By comparison, Renault in France has 30 suppliers with guaranteed contracts, all of which are “preferred”! The difference, however, is that these 30 suppliers have no competition from other suppliers, and are guaranteed continual contracts with Renault. In contrast, Honda’s suppliers are always open to competition, and there is no guarantee of future business. For almost all international sourcing, a Japanese supplier is available as a backup in case of a production problem. Dual sourcing is not preferred by Honda, but it is almost mandatory in Japan because they cannot risk delivery problems. A Honda production line in Japan must be kept running, because there is no layoff system. In the US, it is easier to shut down a line if necessary. Recently, a Toyota brake supplier (Aicheingiki) had a fire. This was the only supplier possessing the fine machining capabilities necessary to produce the part. Their entire inventory, tooling, and machining operations were burned up. Despite the fact that it was a single source, Toyota only experienced a four day shutdown. How? Other suppliers help out, including one of Honda’s brake suppliers. This illustrates the degree of cooperation, even between competing suppliers. For domestic (i.e. Japanese) production, very few international suppliers supply mother plants. Almost all are Japanese suppliers. Perhaps only 5% of the parts are sourced internationally. This is in part to the weak yen. In other cases, Honda will try to capitalize on other large auto manufacturers’ supply base. For instance, GM purchases huge quantities – can Honda capitalize off this by buying from the same supplier(s)? To some extent, as Honda’s volumes have increased, they have become more important customers to their suppliers. Suppliers’ Design Capabilities Gradually, suppliers are having greater influence on Honda designs. To some extent, this input has been limited because adding extra special unique features tends to increase cost per unit. In the UK, Obisan fought with Honda Japan because he wished to alter the Honda specification (this is still a problem in the US today). Today, Honda Japan is more willing to change a specification in order to reduce cost and/or weight. For instance, engineers are now trying to use more plastic and less metal in the magnesium steering wheel aperture core. Responsiveness of suppliers is critically important in the early stages of the product development process. Honda tries to encourage suppliers’ suggestions early before finalizing drawings, particularly in the area of cost reduction and quality improvement. This is to encourage propositions to reduce cost and machining. That is one reason why top management has decided that purchasing should be at Honda R&D (this decision was made in 1991. Prior to that time, Purchasing used to be in downtown Tokyo in Headquarters). Today, both R&D and purchasing people will visit suppliers in the assessment stage of new product development. This interface between R&D and purchasing is deemed critical. Although each party may recommend different suppliers (purchasing emphasizing price then quality), a joint meeting is held to determine the final selection. This strategy was so successful that Nissan followed suit. Their purchasing group used to be in Ginza, but is now located in their R&D Center in South Tokyo. A major barrier that continues to exist is that the elderly people are well-situated in terms of their housing, and are reluctant to move to a new location to facilitate co-location. Supplier Selection Process (New Country) In choosing new suppliers (e.g. for Swindon, UK), the following criteria are used:
On initial visits, part-level information is collected. Obisan emphasizes that you must visit the supplier to understand them! Things to look for include:
Kyoryoku Kai (Cooperative Associations) Honda is not as interested in these organizations as other major automakers in Japan, and therefore does not utilize them. This is because they respect suppliers’ independence, and wish to free them from obligatory membership in an association. Unlike Toyota and Nissan, Honda wants suppliers to be free from ties. However, they do have supplier meetings at least 1-2 times per year, where they present quality and cost reduction awards to suppliers. Creating Competition – Core Competencies The most important principle is to create competition in the supply base. Thus, even in-house suppliers face competition. For example on an instrument panel that was traditionally produced in-house, Honda R&D designed it and purchasing got a good quotation from an outside supplier. The in-house people could not compete with this proposal, so some portion of the business was allocated to the external supplier, and the in-house process was expected to face this competition and find ways to reduce their costs. Investment Honda invests about 20% of their capital in suppliers’ subsidiaries. For example, Kikuchi represents a minor investment by Honda, who has a small share of the company. (Mr. Morita was the purchasing manager in Ohio, and is now at Kikuchi helping to manage them. This is an interesting point: Honda encourages their managers to go to work for their suppliers in some cases, so they can better diffuse Honda’s working philosophies). Honda Engineering will in some cases help suppliers with robot design, tool design, welding, and injection, and may help with investments. Finally, Honda R&D may aid in product design work. Honda de Mexico Honda of Mexico has been producing motorcycles for a long time, and has only recently begun auto production for sale to the Mexican market. This is a fairly small market, and the vehicles are not sold for export. Volumes are currently limited to less than 500 vehicles per month. This is a “knock-down” operation: parts are imported from the Marysville plant and US supply base (no local suppliers) and assembled in the facility. Honda moves a lot of its old tooling from Marysville which has reached its end of life to this plant for aftermarket supply, then may re-export the parts for the replacement market. Exchange rates continue to be a problem in this market. Honda-Brazil This facility began production of the Civic in October 97. Many parts are exported from the Ohio plant. There are some Brazilian suppliers, including TRW which has a plant there and is involved in some technology transfer. This is a very small market, and the peso devaluation makes it very difficult to do business. However, Honda wants to maintain a presence, as this is a very big future market. Global Suppliers A big question that arises as Honda continues to expand its operations is who will become the global suppliers in the US/Japan/Europe, as well as in the future (Brazil, Mexico, etc.)? Obisan notes that different regions are competitive in different areas. An ideal global supplier is:
Unfortunately, there are very few cases of truly global suppliers. For instance, R&D is very efficient in Japanese suppliers, but these same suppliers may not be effective at R&D in a different location. Thus, it is very seldom that they find a supplier that can supply multiple locations, yet locating these suppliers is one of Honda’s most important development strategies. Finding good suppliers to serve both the US and Japan is not a problem: few suppliers, however, have truly global capabilities. How to Develop Global Suppliers:
Improving Communication between Honda in the Four Major Trade Zones Japanese associates do the same type of liaison, and visit the US. Mr. Toshihiko Morita was in the US from 1990 to 1994, and was involved in the development of the Japanese car and the North America Accord, Civic, and Acura. In developing a “world car”, he noted that a major challenge involved how to improve communication between the different groups across the different Honda locations in Japan, Europe, US, and Asia. Although Honda has an international purchasing office, its power is limited, and greater communication is needed across the different production locations. The biggest challenge is how to improve communication and develop relationships across Honda in the four trade zones. This includes:
The World Car – Global Planning Strategy Each country car is current developed in Japan. The basic concept is the same, and is then modified by local regulations. In addition, a Four Region Meeting is held quarterly, with representatives from Japan, the Americas, Europe, and Asia. At this meeting, planning involves a general strategy to deal with companies that Honda intends to do business with. For example, the relationship with a Japanese supplier may be “more mature” than a relationship with the same supplier in the US or Asia; at the meeting, executives discuss how to ensure that the “child” companies can develop to the level of the “parent” effectively and efficiently. In most cases, Japanese suppliers are well-integrated and do not require development. The problem becomes how to transfer this situation to North America, Europe, etc. At HAM, the BP strategy seeks to improve performance continually. The process helps develop a strategy for a next major new model (Accord) that is better that that developed for the previous new model. Although the local situation is important, the problem must be addressed at a higher level in order to fix major problems and/or change the plan if necessary. This often requires that Honda GT (Honda R&D, which includes Purchasing, Engineering, Design, and Testing, all located in one building) become involved. Suppliers’ relationships with Honda are a key factor. Purchasing should be buying from the best in the world, or must explain how and why they will be doing so. As Mr. Morita says: “The challenge becomes how to develop a relationship with those suppliers that we believe to be at the top. Honda places value on maintaining relationships, so we do not enter into them lightly. Because we value them, it is our responsibility to make our relationships better and ensure that things improve and mature over time! To do so, we may send people who virtually “live” in suppliers’ facilities!” On a regular basis, all of the procurement groups meet at a quarterly meeting to discuss integrated global purchasing strategy. At this meeting, the discussion focuses on opportunities for commonality and standardization, coordination with marketing’s export strategy, new product planning, cost management, and technology transfer issues within the supply base. An important part of this strategy meeting also focuses on development of a truly “global” supply base. The following illustration depicts how Honda establishes global supplier capabilities. 
Honda Motor (Japan) 1,100,000 units Honda America Mfg. (HAM) Honda of Canada Mfg. (HCM) 850,000 units
150,000 units HCMT (Thailand) 10,000 units  
 
A2
A3 A4 B1   
Suppose that a supplier (“A”) has plants and/or affiliations located in different regions of the globe. (This is a very common situation for first tier automotive suppliers). For instance, suppose that A1 is the best in terms of performance, and is located in Japan. Another supplier plant, A2 , is located in North America, and a third, A3 , is located in Europe. The supplier may also be asked to startup a plant in Thailand to supply future production there. Each of these locations produces the same family of components. Through the quarterly procurement meeting, Honda can compare A’s performance across different locations. Procurement managers may share insights and compare A’s management styles, productivity, etc. across locations. They can also openly discuss technology issues with the supplier’s engineers at the A1 location, and expect them to tr ansfer knowledge with the different divisions abroad. For instance, Honda may deal with the supplier in developing the technology in at the A1 location, and then expect A to take their practices across A2, A3 , and develop a new supply point at A4 ! They may then transfer the technology horizontally across subsidiaries in the U.S., thus spreading their cutting-edge technology globally across all of Honda’s platforms. This may require that Honda be actively involved in helping the supplier to diffuse this knowledge. A danger with this type of strategy is that Honda might become too dependent on a single supplier of a given commodity/technology. To guard against this possibility, Honda has established a network of suppliers that are competing against each other globally. In the diagram above, suppose that Supplier “A” is Tokyo Seat Technologies. (This Japanese supplier actually has some Honda engineers employed there, and Honda has a minority financial stake in the company). In Japan, Tokyo Seat competes against Tachess (“B1”). In the US, Tachess has a Joint Venture with JCI ( shown as B2 – C1 ). In Europe, Tachess also had a JV with Bertron Fouray (20% ownership), which is currently dissolved. In this manner, Tokyo Seat must face competition by independent companies in each of the areas in which it competes, even though it is closely affiliated with Honda. The relationship between Honda and Tokyo Seat is a type of “keiretsu”. Honda owns shares in Tokyo Suit. It is also commonplace for retired Honda engineers to leave the company and go to work at Tokyo Seat, and perhaps work for any one of their locations over the world. This further helps to transfer technology throughout the global supply b ase. However, Honda’s keiretsu’s differ from other Japanese keiretsus, because there is legitimate competion. In the words of Mr. Morita, “The supplier must earn the business – it is not automatic.” Price is always the key expectation, and there is no loyalty to a competitor who can provide the same or better performance in QCDD-M (Quality, Cost, Delivery, Development, and Management). (It is also interesting to note that the former President of HAM is now a supplier’s stamping plant president – this did not seem to bother the interviewee’s at all, and was considered relatively commonplace!) Although this is just a single commodity example, Honda’s goal is to establish an entire network of suppliers that are competing against each other globally. A major driver for this objective is that at procurement meetings, designers do not wish to work with five different suppliers, but prefer to work with one and maximize the design potential across all of Honda’s platforms globally. This helps to minimize the different modifications of its technology required for global diffusion, yet facilitates adaptation to local market conditions. Directory: scm scm -> The petition and case system scm -> Coastal zone region / estuaries and tidal flats index Map to Study Sites scm -> Section 1 south carolina's intriguing landscape (statewide overview) Index Map to Study Sites scm -> Section 5 coastal plain region / overview index Map to Study Sites scm -> Thirty-sixth regular session oea/Ser. P june 4 6, 2006 ag/doc. 4634/06 re scm -> Scm-061 -confCall6-Summary Source: 3gpp – 3gpp2 scm ahg co-Chair Date scm -> Description scm -> Title: Spatial Channel Model Text Description File: Source scm -> Junior Umpire of the Year – Marcus Kouri • Senior Umpire of the Year – Wendell Kehler scm -> Course Code Course Title Download 295.54 Kb. Share with your friends:
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