The Driving Force Behind Honda
Effective Management of the Supply Chain Keeps Suppliers and Honda Auto Assembly Plants Well-stocked with Parts and Materials
Manufacturing Spotlight
Modern Materials Handling, July 1, 2000 - By David Maloney, Associate Editor

Steel, plastic, aluminum, rubber. This is the stuff automotive dreams are made of.

Each year thousands of parts are fashioned from these basic materials, from the tiniest screws to large engine assemblies. Just gathering the raw materials that support the manufacturing process is a major part of the automotive supply chain. That is where a company such as the Honda Trading America Corp. can be very effective.

"Our role is primarily support for Honda manufacturing operations directly, and also for a lot of their first and second tier parts suppliers," says Greg Norval, senior manager for Honda Trading.

Wherever a Honda assembly facility exists, Honda Trading is there to procure raw materials and to facilitate the lower levels of the company's supply chain management. In the US, Honda Trading offices are found in Marysville, Ohio and Torrance, California.

By centralizing procurement, Honda Trading is able to control quality, guarantee availability of product, accurately determine delivery schedules, and establish consistent costs for Honda, as well as pricing for its major suppliers. "That's the difference between our system and the systems the other automobile manufacturers have," says Lisa Gimeson, manager of the steel group. "We actually manage that inventory, which allows us to control the raw material price and associated costs at a greater level of detail than outsourcing."

Managing such a complicated supply chain is no easy task, as parts' management alone is often performed up to 4 months in advance. Honda Trading America uses distribution software (3rdwave by Blinco Systems, www.blinco.com) to manage product flow within its network. Benefits of the Honda supply chain:

• Assures parts quality
• Controls availability
• Guarantees delivery
• Provides consist materials pricing

The software provides inventory management, tracks the various types of materials in the system and their locations, maintains databases of customers, provides accounting and profitability profiles, and delivers timely reports.

The procurement process begins with the purchasing group at Honda America Manufacturing. The unit forecasts production quotas, determines the parts needed, and issues purchase orders to key suppliers to meet the demands for the current month plus two additional months.

Once suppliers receive the purchase orders from Honda Manufacturing, they determine the amount of raw materials they will need to produce the parts. The suppliers then deliver their own purchase orders to Honda Trading, which handles procurement of raw materials. Stamping facilities, for example, order coiled steel to produce a wide range of materials. Die cast companies, meanwhile, need raw aluminum ingots to produce engine parts.

Next, Honda Trading consolidates all of the materials requests from the various suppliers. Such consolidation allows it to leverage the economics of large-quantity purchases. It calculates what is needed and sends out purchase orders to steel mills, plastic producers, and aluminum manufacturers.

"Keeping all of these materials consolidated under one purchase order allows us to assure every manufacturer that needs to make a part for Honda has access to materials," says Gimeson.

THE HONDA PIPLINE

1. Honda Purchasing issues purchase orders to parts suppliers based on manufacturing projections.
2. The individual parts suppliers determine the materials that are needed and issue purchase requests to Honda Trading.
3. Honda Trading consolidates the requests and issues purchase orders for raw materials.
4. Mills receive the orders and deliver the aluminum, steel, and plastics to the parts suppliers.
5. Once parts are manufactured, they are delivered to Honda assembly plants. Honda Trading also picks up raw scraps from suppliers for recycling.

It also means that quality can be assured, even down to the smallest part. Additionally, Honda Trading determines the release dates when each quantity is needed and how it is to be delivered.

Large coils of materials are then sent to processing plants where they are cut to size to meet the needs of individual parts suppliers. The correct portions are then delivered to the parts manufacturers. These manufacturers take ownership of the raw materials upon delivery, paying Honda the value of the materials. Of course, the suppliers may also choose to buy their materials on the spot market, but costs are higher than that provided by Honda. The large-volume purchases also allow Honda to provide accurate forecasts of its own costs.

"We give the suppliers annual pricing for their raw materials," says Norval. "That way we can fix the cost for parts that will go into each model-year car. It's a win-win for parts makers and for Honda."

Honda Trading's job does not stop yet, however. After products are manufactured at the parts suppliers, Honda Trading gathers all remaining scraps and rejected units for recycling.

"Between both of us, Honda Trading and Honda Manufacturing, we are controlling the entire supply chain," explains Gimeson, "but each of us has our different roles to play within the chain."

© Modern Materials Handling, July 2000.

For related information, please go to:
3rdwave MTD (for Metals Trading and Distribution)
3rdwave CGD (for Consumer Goods Distribution)
Honda Trading America Case Study