Honda Sample

7/27/2019 Honda Sample

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Manila, PHILIPPINES

** Honda Parts Manufacturing Corp. 2003 US$22 mil 140,000 (4)

NOTES:

(1) Automatic transmissions(2) engines

(3) engine and brake parts

(4) manual transmissions

HONDA PURCHASING STRATEGY & RELATIONSHIP WITH SUPPLIERS

Traditionally, the standard metrics used by Japanese automakers in choosing suppliers are quality,

cost, delivery and technology. In the case of Honda, three other factors drive the automakers

purchasing strategy.

First, the automaker depends on suppliers for slightly more than 80% of components in its cars. This

means that the in-house manufactured ratio is slightly under 20% and consists mainly of engines and

transmissions plus bulky, capital intensive components such as body stampings and large plastic

mouldings, primarily instrument panels and bumpers.

Second, Honda procures components from an estimated 400 tier one suppliers in Japan. Globally,

the automakers supplier total approaches 1,000 including more than 600 in North America. There

are two reasons for the comparatively large number of North American suppliers:

Honda produces full-size pickup trucks and SUVs at Honda of Canada Manufacturing andHonda Manufacturing of Alabama. It has no model in this segment in Japan. Thus, since the

Ridgeline, Pilot, MDX and North American Odyssey were all substantially developed by

Honda Engineering North America, there is an unspecified number of non-traditional

suppliers such as BorgWarner Automotive, which until recently delivered the 4-wheel-drive

system for the MDX, though it still supplies the Pilotsystem.

The distance between Hondas main assembly plants in North America is sufficiently long -650 km between Marysville, OH, and Lincoln, AL, and another 400 km from Marysville to

Alliston, ON - to make logistics a critical cost issue for suppliers wishing to serve all six Honda

plants from a single location. Prior to the 2001 opening of Hondas Alabama plant, 60% of

the automakers suppliers were situated within a 450-km radius of Marysville and nearbyEast Liberty, OH, where Honda has been building cars for nearly 20 years. Many of those

same suppliers now produce components for Hondas three-month-old plant in Greensburg,

IN.

Three of four Honda vehicles sold today are so-called global models. These include the Civic,

Accord, CR-Vand Fit. Note that Honda produces the Civic at 15 plants in 14 countries and the Accord

at seven plants in seven countries. Where possible, the automaker prefers to use global suppliers for

global cars.

Note also that these four global models constitute four global platforms on which Honda has

engineered a series of derivatives. Examples are :

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The North American Civic, built at the automakers Alliston, East Liberty and Greensburgplants, is a four-door model

The European Civic, assembled at Honda of the UK Manufacturing in Swindon, has threedoors and is equipped with both gasoline and diesel engines. In the case of the North

American model: gasoline and CNG. Honda estimates that differentiation between the two

cars is 20%.

In addition to the four global platforms, Honda has several regional or market-specific platforms

including the North American light truck platform from which the Ridgeline, Pilot, MDX and

Odyssey were derived and two 660cc minivehicle platforms in Japan. The automaker is currently

developing an all-new platform below the Fitfor emerging markets in Asia. Planned launch date is

2010.

In the case of these regional or market-specific platforms, the supplier base includes a greater

percentage of nonglobal suppliers. An example in Japan: Yanagawa Seiki, which makes manual

transmissions for Hondas 660cc minivehicle line-up.

Unfortunately, many of the automakers domestic suppliers do not have operations outside Japan.

This is partly because Honda is a relative latecomer to auto production. It then took the lead when it

set up a manufacturing base in North America, for years the industrys most lucrative market, with

its Marysville auto plant in 1982.

As a result, Hondas largest group suppliers in Japan - TS Tech Co., Ltd. (seats and headrests), Keihin

Corp. (fuel injection systems and ECUs) and Showa Corp. (steering systems and shock absorbers) -

are dwarfed by Toyotas Big Three: Denso Corp., Aisin Seiki Co., Ltd. and JTEKT Corp.

In fiscal 2007, TS Tech reported sales of US$5.4 billion (479.2 billion) while Keihin and Showa

registered US$3.8 billion (339.3 billion) and US$2.7 billion (283.4 billion) respectively. Thiscompares to US$45 billion (4 trillion), US$30.2 billion (2.7 trillion) and US$12.9 billion (1.2

trillion) for Toyotas Big Three. Moreover, earnings margins of Honda suppliers have tended to be

smaller in recent years although that could change when fiscal 2008 financial results are announced

in April.

Honda defines group suppliers as affiliated companies in which it holds a larger than 20% equity

stake or which depend on the automaker for 70% or more of their sales; or conversely: which Honda

turns to for more than 70% of purchases of a particular system or component.

Thus Denso Corp., Toyotas leading group or keiretsu supplier, is also a Honda group supplier as it

manufactures an estimated 95% share of the automakers heater requirements in Japan and 60% ofair-conditioners. Denso is also the principal supplier of several sensors (oxygen, for instance),

alternators and igniters for ignition systems. In fact, Honda is Densos second largest customer with

a 7% share of consolidated sales.

Other suppliers in this category include Nippon Seiki Co., Ltd., instrument clusters; Stanley Electric

Co., Ltd., lighting; Mitsuba Corp., front and rear wipers and power window motors; and Sumitomo

Wiring Systems, Ltd., wire harnesses for both standard cars and hybrids. These four suppliers hold

dominant shares in several component categories in the Japanese market at least and, in the case of

Stanley, Nippon Seiki and Mitsuba, for motorcycles as well.

Of the major independents, NOK Corp. qualifies as a group supplier for oil seals as do Nichirin Co.,Ltd. for power steering and other hoses and Bando Chemical Industries Ltd. for transmission belts.

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Included in the suppliers in which Honda holds a greater than 20% equity stake are Keihin, Showa, TS

Tech, Nissin Kogyo Co., Ltd. (braking systems), Musashi Seimitsu Co., Ltd. (gears and camshafts), FCC

Co., Ltd. (clutches), F-Tech Inc. (chassis and suspension parts), and Nihon Plast Co., Ltd. (trim and

airbags).

There seems to be no set rule on whether Honda doubles or triples sources or what even constitutes

double or triple sourcing. For most components, Honda relies on multiple suppliers. But on a model

base, it tends to single source.

Examples are : in the case of high-voltage cables for hybrid cars, Honda has two main suppliers:

Sumitomo Wiring and Yazaki Corp. But they divide the contract by model with Sumitomo supplying

the Civic Hybrid and Yazaki the Accord Hybrid. No word yet on the new Insight.

Similarly, the automaker has three navigation system suppliers: Mitsubishi Electric Corp., Pioneer

Corp. and Alpine Electronics Inc. Mitsubishi supplies the Civic, AccordandAirwave while Pioneer was

awarded the contract for the Odyssey(Japanese version), Elysion and Edixand Alpinethe Legend.

And while Stanley Electric supplies the great majority of headlamps to the automaker, Koito

Industries Ltd. is responsible for passenger vans including the Step Wagon, Odyssey, Air Wave and

Stream.

Hondas core suppliers have largely followed the OEM into North America and Asia. TS Tech, for

instance, has set up operations in ten countries to deliver seating and trim products to Honda plants.

In the US, TS Tech has plants in Ohio, Indiana and Alabama.

Keihin, Hondas main group supplier of car electronics, has set up 16 plants outside Japan including

four in the US, while Stanley Electric has lighting plants in London, OH, and Battle Creek, MI. Thesupplier, which supplies an estimated 80% of Hondas head lamp requirements in Japan and more

than half of the automakers rear-combination lamp needs, is believed to have a much smaller share

in the US.

In general, there is a feeling (though not supported by industry data) that Honda depends more on

non-Japanese suppliers at its overseas plant. Example: Honda of Canada Manufacturing turned to

Visteon Corp. for the Acura MDXs instrument panel module last year. In Japan, Visteon has no tier

one business with Honda for this component.

Meanwhile, the automaker continues to make steady progress in expanding local content at plants

outside Japan. Honda has six vehicle and three dedicated powertrain plants in North America, onevehicle plant in South America, two in Europe, and 11 in Asia including three in China. And with the

2007 start of automatic transmission production at a new plant in Foshan, China, the automaker

now has five powertrain plants in Asia.

In North America, local content for the Civic and Accordstands at 81%. The Odysseyand CR-Vare

slightly under 80% while the UK-built CR-Vand Civic are below 65% due to the fact that Honda still

imports transmissions from Japan. However, the automaker produces engines, both diesel and

gasoline, in Swindon.

Elsewhere, local content ofCivics and Fits assembled in Brazil stands at 60% while the Turkish-built

Civic is under 40%. In India, the newly launched Citystands at nearly 80% while the lower-volume

Accordis below 35%.

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Honda Sample