This is the sixth installment of a Ward’s 7-part series stemming from interviews with the purchasing departments of GM,, , Toyota, and Nissan.
RAYMOND, OH – Of all auto makers in the troubled North American market,of America Mfg. Inc. sits in the enviable position of having the most fuel-efficient product fleet.
Led by sales of the thrifty Civic, Honda was the only auto maker among the U.S. top six to show a year-over-year gain in May, posting a record 6,222-unit daily selling rate for the month, up 11.3% from year-ago in a market that fell 14% overall.
Yet, none of this good fortune means Honda’s purchasing staff or its suppliers are having an easy time of it.
Bob Nelson, assistant vice president-purchasing, says Honda of America is struggling with soaring steel and commodity prices like every other OEM.
What’s more, he admits guiding suppliers through the auto maker’s production juggling act as it cranks up Civic and CR-V production, while it consolidates light-truck manufacturing in Lincoln, AL, has not always been easy.
“We have some dedicated people just to focus on changes in demand for Civic and CR-V,” Nelson says.
In an effort to free up space for those two hot sellers and maximize capacity utilization, the auto maker recently shifted all production of the Pilot CUV from Alliston, ON, Canada, to Alabama. The slow-selling Ridgeline compact pickup truck will be shifted to Lincoln – which also builds the Odyssey minivan – in early 2009.
Honda also is launching a new greenfield plant in Greensburg, IN, to produce Civics later this year.
Even though HAM is cranking up production and purchasing, and spreading the bounty only among its existing supply base, the auto maker still has its share of suppliers in financial trouble or some stage of bankruptcy.
“It’s better (overall) than it was three years ago,” Nelson says, adding there now seems to be a higher ratio of Tier 2 companies in distress than Tier 1s.
Why that is, he’s not sure. “Whether they are Tier 1 or Tier 2, usually it’s some issue that hasn’t been dealt with and has gotten out of control.” Nowadays, record commodity prices can be the final straw for a supplier on the brink, he says.
With some auto makers reportedly paying 30% more for steel than they did just last year, Honda is exploring all options to limit the future impact, Nelson says. That includes evaluating vehicle designs that use thinner-gauge steel, less-expensive grades and alternative materials.
However, making major material substitutions is a long-term strategy that can’t be accomplished overnight, Nelson points out. In the meantime, Honda of America is implementing supply-chain and logistics strategies that already have yielded as much as $2 million in annual savings for some models, he says.
One key program is called value-stream mapping, an analysis tool the auto maker has been using to improve assembly-line productivity that it now is applying to its entire North American supply chain.
By plugging in the right data, the system shows how total supply-chain costs can be reduced, even if money has to be spent in certain areas. In one instance, the analysis showed adding special equipment to help workers unload heavier boxes on loading docks would enable the auto maker to fill the boxes fuller.
The fuller boxes led to more densely packed trailers and reduced the number of truckloads needed to transport the parts. That savings far outweighed the cost of the material-handling equipment.
“By considering the scope real broadly, we might make different decisions that give us a net favorable impact, whereas before, maybe we were just looking at how to fill the trailer, or how to fill the container. Now we are looking all the way to line-site delivery,” Nelson says.
Other cost-reducing strategies evolving from the value-mapping equation include new onsite consolidation centers at assembly plants in Alabama and Indiana, as well as looking at shipping more parts by rail rather than truck.
“We will have a facility on site to break down packaging and ready the delivery to the line site as opposed to having to do that offsite and then into the facility. The consolidation center gives us efficiency shipping in large amounts to that location and then breakdown to the plant’s needs,” Nelson says.
“We are trying to change the approach of how we look at things to give us a bigger benefit. Traditional benefits or measures are not going to be enough, so we’ve got to think out of the box on how we are going to do this.”