NO. STUDENT NAME STUDENT ID

1 RAVINDER KAUR 012013050189

2 MUHAMMAD NUH BIN ZAINUDIN 012013051149

3 NOREZA BIN RAZAK 012013050188

4 FAUZIAH BIBI BINTI ABD AZIZ 012013050189

5 MOHMAD NUR ALI 012011110475

CASE STUDY : HONDA

QUESTION 1 How does Mr. Honda’s history with suppliers relate to Honda’s current supply management strategy?

The current supply management strategy reflects Honda's long-term goal of manufacturing products where they are sold, and its corollary goal of buying parts where it manufactures vehicles (MacDuffie). 1) Increased local content - is due largely to purchases Honda makes from many of the over

3 Japanese automobile supplier firms that were established during the second part of the 1980s.

2) Focusing on 4 regional markets - has allowed Honda to develop strong sales, research and development, and manufacturing operations in each region - to ensure that the product mix in each region is appropriate to the needs of the region.

3) Developed a comprehensive approach to teaching the principles of lean production to its suppliers.

4) Uses the Japanese concept of keiretsu which involves a close-knit network of vendors that continuously learn, improve, and prosper along with their parent companies. If cost negotiations stagnate, Honda send in its engineers to help the supplier find a way to meet the cost target while maintaining acceptable profit margins (Laseter).

5) Suppliers are involved in the development process to the extent that they are asked and invited to submit suggestions about how certain designs could be made better, faster, with less weight, or less expensively. Today, purchasing is done by the Honda research and development department.

QUESTION 2 Why is purchasing so important at Honda?

1) The International Purchasing Division of Honda Corporation has full responsibility for coordination between Honda and its overseas plants. Honda' purchasing department carries out the localization strategy. This strategy involves

• finding and qualifying local suppliers • developing a second source when volume doubles, or when quality or on-time delivery

problems occur • in situations in which the goals or the philosophies of the Honda and the supplier are

mismatched, Honda will respect its contract to do business with the supplier. 2) Providing feedback to suppliers on a regular basis to help them to understand, control, and to improve their performance in terms of component deliveries to Honda. 3) Financial condition and cost structure involves relationships that links banks, manufacturers, suppliers, and distributors with the Japanese government. 4) Purchasing Operations procure the parts used, conduct quality and cost management, and are also involved in promoting the development of new technologies. 5) Along with Q (quality), C (cost), D (delivery), and D (development), Purchasing have added M (management) and E (the environment) to supplier evaluations, and are advancing the procurement of parts that give consideration to the environment. 6) Purchasing results in lower cost, higher quality and more reliable sources of supply.

When a part manufactured by a supplier is used in a Honda, the CO₂ emissions generated by the supplier to produce that part is naturally included in the CO₂ emissions generated to produce our cars. In fact, more than half of the CO₂ emissions generated in manufacturing Honda products are from the materials and parts procured by Purchasing Operations. This means that Honda’s overall CO₂ emissions cannot be reduced unless the Purchasing Operations work together with suppliers to reduce their CO₂ emissions. Considering these conditions, Purchasing Operations revised the Honda Green Purchasing Guidelines in 2011. The purpose of the Honda Green Purchasing Guidelines is to deliver products with the smallest environmental footprint to customers worldwide through corporate activities with the smallest environmental footprint. The Guidelines are to have suppliers support this Honda approach and supply parts that meet Honda standards.

QUESTION 2 Why is purchasing so important at Honda?

“Honda was originally started as a small motorcycle manufacturer. We have grown this far because right from the beginning, our stance was to cooperate with suppliers and together provide products to customers worldwide. We have collaborated with suppliers ever since the time of our founder Soichiro Honda, so we do not draw great distinctions between inside and outside the company. Moreover, the range of works is broader than that at other companies because we procure materials and parts for motorcycles, automobiles and power products,” - Takayuki Onda, Manager, Purchasing Planning Office, Purchasing Operations

QUESTION 3 How does purchasing rank in the corporate structure at Honda?

The Purchasing at Honda has the option of adding a second source of supply and ultimately for disqualifying suppliers from additional business with Honda.

QUESTION 4 How is Honda organized globally? How does this help/hinder the purchasing function at Honda?

Honda organized globally help/hinder the purchasing function at Honda

· Leader in developing motor scooters

· Leading automotive exporter

Create buying & selling power

· Localization of production Neutralizing the effect of currency rate

· Sensitive to international requirements

· Taking advantages / creating

opportunities with Government

intervention

Legalized contract & strategy through Market

Oriented Strategies agreement(MOSS)

· Partnership with competitors (sharing

of product & process engineering)

Get to share same suppliers from the

competitors

· Maintaining relationships with suppliers

– virtually live in suppliers facilities

Assurance of quality & services

QUESTION 5 What are the key elements of Honda’s supplier evaluation policy? How does it differ from others (e.g. the Big Three)?

How Honda sees their supplier:

• Responsiveness & involvement of suppliers at early stage of product development.

• Supplier evaluation by Honda R&D • Recognize supplier’s existing customers – product supplied • Technology development for 2 years • Honda must visit the supplier – 3Gen • Efficient in R&D • Equally competitive at any global locations • Equally proficient in cost & quality at all the plants • Maintaining relationship with suppliers

QUESTION 5 What are the key elements of Honda’s supplier evaluation policy? How does it differ from others (e.g. the Big Three)?

How other companies see their suppliers; • Partnerships to control whole supply chain • Evaluate whether they must continue to assemble products themselves or

whether they can outsource production entirely • Slashed the number of suppliers they did business with, awarded only to the

survivors a long-term contracts • Encouraged top-tier vendors to manage the lower tiers • Go for the immediate benefits of low wage costs outweighed the long-term

benefits of investing in relationships • The development of Internet-based technologies allowed companies to get

suppliers to compete on cost more efficiently, eventually causing suppliers to brutally compete in cost

QUESTION 6 What is Honda’s policy on new product development and supplier involvement? How does it differ from other automotive companies?

Pacific Automotive Cooperative (PAC) in 1986, the Japanese and American governments initiated its Market Oriented Strategies agreement(MOSS). The new policy required companies to report all of their import and localization volumes since 1986 Re-assignedPacific Automotive Cooperative (PAC)1995 Joint venture composed of Japanese automakers, (including Honda, Toyota, Nissan, and Matshida), consisting of 32 shareholders. This cooperative was established to meet political objectives for production in North America, objective to attempt to develop industrial collaboration to help Canadian suppliers become more competitive.

How does it differ from other automotive companies? • In European for example Honda started with a very high localized

European content from the beginning (80%) from content in domestic European means following European taste and also maintaining high quality.

• This was not a legal requirements, but essentially constituted a “European-made car”. The reasoning was also that if the domestic content was this high, European countries would more easily accept such us new Honda Civic

• Quality design in Honda follow from consumer want and more, and keep maintain new passion in quality design

• Honda more for save consumption energy but improve in high quality performance, low consumption energy is value advantage from the other competitors.

QUESTION 7 Does Honda support local sourcing from domestic suppliers? What are the advantages/disadvantages of this approach?

• Yes The advantage of this approach : • From domestic supplier is more important for Honda to

create domestic market taste and easy absorb value creation

• Domestic suppliers more understand customer culture and market trend

• Domestic suppliers also can eliminate time, cost and energy to distribution and production.

• Kaizen easy to implementation in domestic suppliers because more near and eliminate unnecessary cost.

• Glocal ( think global act local) from domestic supplier is more possible

Disadvantage from this approach :

• Sometimes domestic suppliers can’t provide specific raw material or material or product

• Domestic suppliers not to many variant to improvement new design or new product or experiment product

• Design in domestic suppliers maybe different with global market

• Sometimes domestic suppliers more strong character and can’t receive global market

• Every country have different taste and culture for product, sometimes domestic suppliers just provide to domestic market not global market.

QUESTION 8 Honda’s policy and commit to long-term relationships has been criticized as being “too loyal”, and Honda will go to “ridiculous lengths” to maintain a supplier relationship before severing ties. What do you think about these criticisms?

Although the policy has been criticized by public, but there is nothing wrong with the long-term relationship between Honda and Supplier, as long no impact on the production and company revenue. 1. Quality, cost and delivery criteria are the most important criteria to consider maintain a supplier 2. Always looking for better suppliers who can produce parts locally 3. Supply change management : a. single sourcing - contract will last for the life of vehicle - may not enough capacity b. dual sourcing - used when delivery problem occur - not preferred by Honda, but t is almost mandatory in Japan because they cannot risk delivery problems. 4. Do have supplier meetings at least 1-2 times per year, where they present quality and cost reduction awards to suppliers. 5. Global supplier – very efficient in R&D, equally competitive across multiple global locations, equally proficient in cost, quality, etc.

QUESTION 9 The “keiretsu’ system in Japan has been described as having advantages and disadvantages. Does Honda have a keiretsu (answer: no, not really)? What are advantages of a keiretsu? Discuss he case of Nissan: their keiretsu is breaking up under ownership b France’s Renault. What do you think this means for Japanese buyer-supplier relationship in the automotive industry?

Keiretsu - A type of business group in Japan - A set of companies with interlocking business relationships and shareholdings

Honda's keiretsu differs from others in Japan because there is legitimate competition.

Re-assigned Pacific Automotive Cooperative (PAC)1995 Joint venture composed of Japanese automakers, (including Honda, Toyota, Nissan, and Matshida), consisting of 32 shareholders.

Advantage of keiretsu

1. The mutual stockholding among the group members improves their stability 2. Helps transfer technology 3. organization of overall business procedures 4. risk-distribution function 5. information function, 6. internal financial market functions 7. strategic group coordination functions 8. symbolic functions 9. forward-looking structural changes functions 10. Evidence of continuous improvement and environmental activities 11. Kaizan activities on the manufacturing floor 12. Machine efficiency - for example if a manufacturer has older machinery in use, they will need to

invest in new equipment in order to manufacture to the standards of quality required by Honda of its suppliers.

13. To stop crisis and struggle with foreign competitors. Especially automotive and electronic companies introduced many cost-cutting reforms (Mayasoshi, 1998: 112). These reforms, mainly staff reduction, transferring of production overseas and a review of purchasing strategies, influenced on the bankruptcy of many domestic companies belonging to keiretsu groups.

14. provides access to funds for group companies 15. Fast access to information is crucial in modern business. A keiretsu provides fast access to daily

updated information for their companies. The possession of relevant information gives a keiretsu a big advantage over its competitors.

16. long-term agreements between group’s companies. Furthermore, the mutual business relationships are clearer because counter partners know each other. It is also easier to plan long-term investments.

Disadvantage of keiretsu

The keiretsu system has the disadvantage of reacting slowly to outside events since the players are partly protected from the external market. During the first few years of automobile production, levels of local content remained quite low. Example, the relationship between Honda and Tokyo Seat is a type of keiretsu.

Impact in the automotive industry? 1) Global supplier development 2) Purchasing liasons 3) Performance capabilities - moving capacity globally 4) Transferring technology globally between suppliers 5) Improve quality 6) Promotes group cohesiveness and helps the members to participate in large projects 7) Long-term and continuous business relationship between an assembly maker and 8) its domestic parts suppliers. 9) The domestic keiretsu network does not reduce imports but the global keiretsu

network increases 10) Reduces the cost of market entry 11) Lower transaction costs

References:

1) http://www.mypurchasingcenter.com/commodities/commodities-articles/happy-

anniversary-honda/

2) http://www.research-assistance.com/paper/37938/a_ra_default/case_studies.html

3) http://world.honda.com/environment/face/2012/case09/episode/episode01.html

4) http://www.ferret.com.au/c/honda-mpe/honda-mpe-stress-the-importance-of-

purchasing-genuine-products-n818242

5) http://www.strategy-business.com/article/13515?gko=ce6a5