Logistics

and Supply
Chain
Managemen
t
Assignment
SCM System of Honda
Motors

P.M.Somanna - 09109
Supply Chain Management System of Honda Motors

The study of Honda’s SCM system is of its operations in the US. Along with Toyota, Honda have one
of the strongest SCMs in the automotive industry and this strong tradition arises from the fact that
they belong to the Japanese stable of quality development and quality processes.

Honda’s Operational practices show a great example of the innovations the Japanese automobile
manufacturers perform and some of their operational strategies are as follows:

 Careful site selection of their US manufacturing plants

 Greenfield Manufacturing Plants
 In- depth supplier relationship which is 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 Process and Differentiators

Honda uses their economies of scale by working with their parts suppliers to order raw materials in
large quantities and therefore integrate their suppliers into the entire purchase process in the
following ways:

 Suppliers are involved with development and design of new products

 Relationships with suppliers is much like a partnership
 For the success of the functioning of the unit it requires an in-depth supplier selection
process

Some of the structural characteristics of the Honda supply chain are also known as executional
drivers that reduce operating costs and increase productivity. Economies of scale are achieved as all
purchasing is done by Honda Trading America Corporation and the technology used are
multipurpose machinery which further reduce the associated manufacturing costs translating into
lower costs of production. With regard to capacity utilization also Honda operates facilities in every
major market they enter and therefore cut out problems of outsourcing and dependence on
external markets to drive local ones.
Example of Honda Supply Chain

Market Characteristics

IT advancements in the market have been pioneered by the Japanese car manufacturers
especially Honda with technologies such as the 3rdwave distribution software by Blinco Systems
which assures parts quality, controls availability, guarantees delivery and provides consistent
materials pricing

External factors such as increasing oil prices also effect transportation costs for all markets

Competitive Characteristics

Strategic and operational variables must be factored into the design of a company’s global value
chain which can be covered in the following:

 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 which is covered in the
following 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 and purchase order.
Company Specific Characteristics

Strategic sourcing involves maximizing the value added through Honda’s external suppliers and they
always will choose the highest supplier in overall service (not just lowest price)

Honda also practices Target pricing wherein they prepare a price table for parts and if the price
cannot be met, Honda will work with suppliers to get costs down.

Q.C.D.D.M at Honda

At Honda customer satisfaction is top priority and this is accomplished through supplier’s
competitiveness in quality, cost, delivery, development, and management (Q.C.D.D.M.)

This principle is what drives Honda’s entire manufacturing and final delivery process.

Ingredient Elements
Quality  Most important factor in final
perception and sale of product
 Must be built into production process

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

Development  Uniqueness in design and specifications

 Helps create identity for Honda

Management  Positive attitude and encourage new

ideas
 Measured by Q.C.D.D
 Grade cards for suppliers to gain
feedback into the process
Now India is a part of Honda’s Global Supply Chain

Honda Motors' has a plant in Rajasthan which is an export base for certain key engine components,
and not a manufacturing hub like some other auto-makers such as Hyundai, Suzuki and Renault
already have. The company has similar bases in other ASEAN countries.

Honda Siel Cars India (HSCI), a subsidiary company of Honda Motor Corporation (HMC), Japan, is the
sourcing base for critical engine components to other Asian markets. HMC is the second most profit-
making car company in the world, behind Toyota.

With the global markets plagued by currency fluctuations importing components isn’t a feasible
option. So, it is only natural for international auto makers to set up their own production facilities in
the country and also tie up with local vendors for component.

Thus we see how Honda’s robust supply chain management system has managed to integrate
international markets to add to its overall efficiency and reduce costs on the whole.