Ward’s spoke in early June with a top Honda Motor Co. Ltd. official as part of its annual U.S. purchasing executive interviews.

In the interview, at Honda’s Marysville, OH, assembly plant, Larry Jutte, senior vice president-procurement, discusses supplier contributions on the new Acura TL sport sedan, built in Marysville, as well as the company’s outlook on suppliers rushing to developing markets to set up manufacturing facilities.

An interview with General Motors Corp.’s Bo Andersson appeared June 30, Ford Motor Co.’s Tony Brown July 1, DaimlerChrysler Corp.’s Peter Rosenfeld July 2 and Toyota Motor Corp.’s Andy Lund and Osamu Nagata July 6.

Excerpts from all five interviews are in the July issue of Ward’s AutoWorld.

Ward’s: Were there many changes in sourcing patterns from the previous-generation Acura TL to the new model?

Honda’s Larry Jutte says auto maker does not encourage suppliers to locate overseas.

Jutte: Just about everything you see on the exterior of this body is a newly designed part because of styling of the product itself. But we as a tradition try to keep at a minimum, dual, if not – based on our volume – three suppliers to keep good competition. That keeps the freshest ideas coming forward. We would never want to single-source something and keep it there forever, because the spirit of innovation comes from necessity. If you always have someone nipping at your heels, that necessity is always there, and you usually bring your best ideas to the table.

Ward’s: Is there any way to quantify that turnover between model years?

Jutte: Every major model year, everything is on the table. Everyone gets a fair shake at what we do. We look at global-best suppliers, and as we do in all regions, we look for the best local suppliers who we expect to be globally competitive. That’s sort of the key. We’re not chasing different things all over the world. We really believe, based on our model makeup and total volume here, there’s really no reason for someone not to be globally competitive locally.

Ward’s: Your headlight supplier, Stanley Electric, ships headlamps from Ohio to Japan. Is that a unique situation for them to export to Japan or other Honda facilities?

Jutte: You hear so much in the industry – everyone is running here and running there (to new markets). To see a local supplier being globally competitive and shipping back to Japan – maybe in a lot of people’s minds that wouldn’t be the norm today for doing business. But if you’ve got the best, most efficient processes set up, typically materials here in the U.S. are competitive if not more so than anyplace else in the world.

Ward’s: Any idea what the average distance is that your suppliers ship their components for the TL? Are the bulk of the suppliers in and around the Marysville area?

Jutte: Typically what you’ll find at all our manufacturing facilities in North America, the bulkier, more critical components – being stamped or welded – usually will be within reach, within one hour, because they are usually synchronized with us exactly. As we are broadcasting (production forecasts), we are broadcasting internally as well as to these suppliers. They are producing based on our synchronized production. They’re not sitting on inventory. They may have two to three hours between their facility and our line, and that’s how they produce. We take all the inventory and all the waste out of our production system.

Ward’s: Can you give examples of Acura TL parts that are synchronized to your line?

Jutte: Wheel arches, floorpan, a lot of our larger plastic components, door linings (door trim panel). These door linings are probably one hour and 10 minutes away from us. The speaker assembly and so forth are put together here.

Ward’s: What’s the supply chain setup for doing the instrument panel (IP) on the TL?

Jutte: It comes from Intertec (Systems, in Bardstown, KY). They are the integrator, and we wanted them to take all the components on this IP and help with fit and finish and the design characteristics. They worked very closely with (Honda) R&D and all the suppliers of individual components. You can see the result is a very finely finished product. We learned a lot of good lessons by working closely with suppliers.

Ward’s: Is there anything you can point to that, between model years, was done differently and saved money?

Jutte: I think we took our IP and Intertech’s alignment of all the components to the next level. In J.D. Powers’ survey for appeal, the TL in the small-luxury class ended up being No.1 for 2004, which is pretty significant for a new product coming right out of the gate. Part of that is styling and part of it is how well things fit. You can have nice styling, but if you have big gaps and big holes and you can’t control your supply base it doesn’t matter at the end of the day. All the suppliers came together and worked well in accomplishing what we have here today.

Ward’s: The TL has a great sound system, the DVD-Audio surround-sound.

Do Honda and Acura have an exclusive with Panasonic for DVD-A?

Jutte: I don’t know how that contract went. This being the first 6-CD DVD-Audio system for automobile is really quite unique. But the greatest thing is it’s got to fit to the customer. I’m driving one of these now, and it’s hard finding adequate music I like to listen to that’s been recorded properly. (Recording veteran) Elliot Scheiner, who partnered with Panasonic and Honda, did an excellent job.

Ward’s: Could you give us an example of parts shared across many platforms that we wouldn’t think of?

Jutte: Going to Canada and having voice recognition in French may not be what you typically would think about as an innovation, but French-speaking navigation systems for us is taking that to the next step.

Ward’s: Is that offered new on TL, and was it not available on any previous vehicle?

Jutte: It wasn’t initially, but it will be. Probably the sales team in Canada said, ‘Hey, we think this may have some merit up here. We’d like to put it on the Canadian TL.’

Ward’s: One of the hallmarks of Hondas and Acuras in general is fit and finish. Working with suppliers, what do you do to ensure that level of build quality?

Jutte: We’ve evolved over the last five years a new model review system that is very structured. It has five steps to it. All of our critical suppliers actually go through physical review processes, where we have hundreds of checkpoints on making sure the design meets our validation requirements, to production to tooling to testing and training. And some components will do a 200-piece trial.

If you don’t make the grade, then you fail that review process. And then you have a rematch, and if you fail that you have another rematch. So we’re very relentless in ensuring that the suppliers are prepared properly. And if they are struggling, we don’t simply walk away. We’ll support them, assign engineers if we need to, both from R&D and from our purchasing engineering team to work with them to resolve issues. It may be an issue that they are meeting the specs, but when you bring the whole thing together it’s still just not quite right. Making it right means the ultimate customer is the one saying it’s right.

Look at this fit right here (on the TL’s dashboard, above the glovebox) and that crucial line. The supplier and our team worked together to redesign the process months before mass-production launch to make sure we could keep this tolerance on this radius here. They ended up putting a secondary station in with a cooling fixture to make sure we could maintain the tolerances on it. That was done between Honda working with the supplier to find the optimum situation there. The end result was very nice.

Ward’s: Is the challenge here because this is a moving part?

Jutte: A moving part, and this is plastic. When you mold plastic, it has a tendency after it cools to move. To get the mold right and to get the tooling fixture exactly right is where that challenge is. We probably had four Honda people stationed at the supplier working with them hand-in-hand for months to perfect that process.

Ward’s: Can you apply this work to other vehicles?

Jutte: What we learned from that experience can apply not just to gloveboxes but to other plastic parts anywhere on the vehicle. Anything that has a mating line that you’re trying to control. Every one of these points is something we can now take away the knowledge we gained and apply to other programs.

Ward’s: As you look at this slight gap here (where glovebox closes against dashboard), as a Honda engineer does that drive you crazy?

Jutte: Absolutely.

Ward’s: What do you do about that?

Jutte: I’m going to find out when this car was made, and it looks like this isn’t the part (glovebox) as much as the latch. This (gap) may not be the supplier’s. This could be in-house. But is that within tolerance? I don’t know. Do I like the way it looks? Do you like the way it looks? No. We don’t. It could be better. But it’s the first thing you look at when you get in the car. It should be seamless.

Ward’s: Is there a Honda philosophy or a preferred way with regard to local content? What if you can buy something cheaper in Mexico?

Jutte: We have had a philosophy forever to source where we produce. Over the years, the majority of our products are around 97%-98% local content (for U.S.). And even though we are looking for global competitiveness locally, some of our local suppliers are sourcing some of their Tier 2 or Tier 3 components somewhere else, which is their business. We don’t encourage it strongly; we don’t discourage it strongly. There are opportunities out there, just as I believe there are opportunities for our local suppliers based on the volume of products built here in North America. There is no reason that they (suppliers) can’t be globally competitive locally. We have great technology, great people. No reason you can’t compete.

Does China have some advantages in certain sectors? Probably so, but that’s just one component of what makes up total cost for a part. And a lot of times, one component doesn’t overcome some of the other components: logistics and other things. Look at your whole value stream of products, and if you need to move quickly, those key components are best served to be made here locally.

Ward’s: Does Honda have a strategy to source parts from China for cars built here in the U.S.?

Jutte: We have no strategy to bring more parts from any other part of the world, specifically. I do know of suppliers of ours that are sourcing Tier 2 and 3 components from China, Thailand, Malaysia, the Philippines, maybe doing final assembly here. Maybe it’s their own company that they’ve decided to globally source something in one location because of the tooling cost and so forth and ship it globally. We’re fine with that, as long as they’re taking the responsibility to control all of those things.

They have to control their own destiny. If they are doing significant business in that way, it could be a risk. We will understand that. And through our new model review process, we will find that out. In some cases, we may go to those locations and check the actual situation, confirm the stability, capability of the supplier, even though it’s a Tier 2 component. We don’t care. We want to guarantee that product to our customer.

Ward’s: Are you saying in many cases it might be more appropriate for a Tier 1 or 2 supplier to source from China rather than Honda buying direct material – headlamps or other modules – from places like China?

Jutte: That is up to each and every supplier we work with. That’s their business, and we try to stay out of the business of running their business. What we do expect them to do is clearly be able to manage their supply chain, and their suppliers should be global best as well, which will make them global best. It’s hard to be global best if all the components coming into your facility are global worst.

Ward’s: UAW employees at Delphi, Visteon and American Axle have accepted significant pay cuts with adoption of 2-tier wages. Does that new cost structure make those suppliers more attractive to you for future business?

Jutte: Whether Delphi or Visteon or China or Thailand, everyone has a different wage structure. But that’s just one component of the cost of doing business. If cost were the only factor, this job would be easy. They wouldn’t even need me. We evaluate based on quality, cost, delivery and development capability, every time. And we’ve added risk and financial (health). You may have the best price, but that doesn’t mean you have the best quality or the best development capability or the best financials. If you have the best price, but your financials are heading toward red, we won’t go there. We are very diligent about not doing business with people who can’t manage their own business.

We do business with Delphi today. The Acura TL has a Delphi battery in it. Visteon makes instrument-panel meters (gauges) for the Accords. Both companies are globally competitive in some of those aspects (quality, cost, delivery and development).

Ward’s: But Delphi and Visteon already supply Honda, so they’ve cleared some hurdles. If they continue to deliver acceptable quality and can now do the same job for a fraction of the price, doesn’t that make them more attractive?

Jutte: No. You said acceptable quality. Our quality standards every year are getting tougher. And our delivery requirements are getting tougher. Our new model requirements are getting tougher. They may have cleared a hurdle for one aspect of doing business with Honda, but that doesn’t mean they’ve cleared all the hurdles on winning more business with us. They’ve proved to us they are a player. They have every capability, if they choose to engage their whole team to win business with us. They have business with us today. I can’t tell you if they’ll have business with us tomorrow.

Ward’s: How have you been impacted by high steel prices?

Jutte: We have contracts, and everybody is honoring the contracts.

Ward’s: How long are the contracts?

Jutte: They are annual contracts.

Ward’s: So you don’t do 4- or 5-year steel contracts?

Jutte: No, that would be a bit dangerous.

Ward’s: GM and Ford have angered suppliers by recently amending their terms and conditions for contracts. Has Honda changed its terms and conditions in recent years?

Jutte: Certainly we have purchasing and sales agreements with our suppliers, and it’s more along the line of a partnership kind of approach. If we have trouble at some point, we sit down at the table and work through it. If the supplier can’t fix it themselves, we will provide support and help work through the issues. Sometimes it puts more pain and burden on our team, but that’s the way we work.

Once we choose you to be our partner, you’re our partner. Once I decided to have children, they’re my children. Then I gotta take care of them. It’s my job. I decided. But from time to time, we may have a difficult situation due to a company in financial difficulty. But it’s not predicated on the terms and conditions or some contract that we have. Other than some (electronic) procurement changes recently, we haven’t updated any agreements.

Ward’s: How does Honda make supplier relationships look so easy?

Jutte: We treat our suppliers like true partners. Are we tough? You’re darn right we’re tough. Do we challenge you? Absolutely. Will we support you if you fall down? You bet we will. If you’re going to trust someone to make important components for you to satisfy your customers, you’d better all be working together. Trust creates a better working relationship. Is it ideal? Probably not. Are we working to make it better? Absolutely.

(See related story: Interior Suppliers Must Make Grade)