Ward's recently spoke with Larry Jutte, senior vice president-Procurement forof America Mfg. Inc., as part of its annual interviews with OEM purchasing executives.
In the interview, Jutte responds topurchasing chief Tony Brown's comment that Japanese auto makers call the shots for purchasing done in North America. Jutte also says finds many globally competitive suppliers here in the U.S.
Interviews with GM's Bo Andersson,'s Brown and 's Peter Rosenfeld already have posted on WardsAuto.com. An interview with Motor Corp.'s Simon Nagata will appear July 8. Stories also can be found in the July issue of Ward's AutoWorld.
Ward's: How does Honda of America perceive global sourcing from low-cost markets such as China?
Honda's Jutte says several U.S.-based suppliers have kept Honda business by beating overseas competition.
Jutte: Our philosophy hasn't changed. Our whole team's attention is focused on our supply base here in North America to be globally competitive. That doesn't mean, go buy parts from overseas and ship them to us. It really means working with our local supply base. The vast majority of them are good companies, (we want) to make them great companies, better companies.
We have companies here in North America, one in Michigan – ADAC (Plastics). They make the inner door handle on the Ridgeline. They won the business on the Ridgeline, and subsequently they've won other business from us. They are a good company. Their original quote was already better than anyone else, on a global basis.
We didn't just accept that. We went in and by working with them on tooling, on cycle times, parts procurement, all aspects of doing business, we were able to reduce that original quote by almost 15%. That made them that much more competitive. Not just for Honda, but for anyone they're doing business with. (See related story: Honda Asserts NA Purchasing Independence )
Ward's: Even without that 15% reduction, they were still the best bid?
Jutte: Yes, they were competitive. My point is, we don't just stop when you say, “this is what we can do.” The importance is we have a trusting relationship and that we can work together to take more waste out of the process and the business. Not take away from the profitability but take the waste out.
Ward's: So even plants in Michigan can be competitive on a global basis?
Jutte: They're a traditional Michigan supplier, and they're pretty darn good.
Ward's: Can you give an update on sourcing of parts for the new plant in Lincoln, AL? Is there any movement to get suppliers closer to the facility down in Alabama?
Jutte: For the most part our supply base for Alabama is pretty stable. The quality going into the plant is very good, and we monitor and communicate with all of our North American companies on a monthly basis. Every six weeks or every quarter we have North American meetings and talk about opportunities for improvement and work together to address those issues.
As far as the movement of suppliers to the Southern region, those are business decisions that our suppliers are making. We're not dictating that somebody move down there. But certainly with the volumes at Honda now, with both of our (Alabama) lines for the Odyssey and Pilot running, that's a different game.
There can be some benefits from being a little bit closer to the facility. But you don't want to push that too early, and of course you don't want to be too late. The people who know that best are the suppliers – they know when it's time. I'd rather see natural competition than Honda telling somebody what to do.
Ward's: So Honda is neutral, but are some suppliers already starting to migrate to Alabama, setting up operations?
Jutte: I'm guessing we have 27 suppliers that either have moved to that area or maybe have other intentions with DaimlerChrysler down in that area.
Ward's: Meridian does the plastic in-bed trunk for the Ridgeline. How is Meridian's bankruptcy affecting Honda?
Jutte: Meridian was in here about a week and a half ago, giving us an update. My feeling about Meridian is they're pretty well organized to manage through this situation. But for the most part we've been communicating about where they are and the progress of their bankruptcy filing. We haven't had a lot of noise from them.
They've been continuing to supply us without interruption, and the quality has been good; the delivery has been good. They truly are managing this process, what seems to be on the surface, pretty well. I still think we picked the right supplier because they were very competitive in this new business venture with us, and they had good input into the manufacturability of this product, which led to them winning the business. They continue to make that deadline for us.
Ward's: How does upper-level management in Japan react to suppliers in bankruptcy? This is a uniquely American thing, and it seems that bankruptcy in certain cultures could be considered as a real negative.
Jutte: One of the directors from Honda Motor (Co. Ltd.) in Japan was here this week, and I spent the last couple of days with him. We shared where we are with suppliers that are in bankruptcy here. There's an understanding that has evolved that it's part of the business environment here in North America. But it's not just North America. They have their challenges from time to time as well. Not that it's never happened – it's just a different process in Japan. But it happens there as well.
Ward's: Do you think auto makers share any of the blame for suppliers going into bankruptcy?
Jutte: If a supplier is struggling, we'll send people in. We'll help work through the problem and treat them fairly. If they're struggling to make a living, then it's going to have an impact on us. Part of our responsibility in our extended family is our supply base, and we need to make sure our family is healthy.
Do auto makers share the responsibility? From Honda's point of view, I would say no. If you're my supplier and I'm treating you fairly, and I'm working with you and we're having good communications and our business relationship is fair, then if you end up in bankruptcy, I would have to ask, “Why?” I don't know about anyone else in the auto industry. (See related story: OEMs Won't Coddle Bankrupt Suppliers)
Ward's: When you talk about Meridian, do they say their business with Honda had something to do with them being in bankruptcy?
Jutte: Not as far as I'm aware. They haven't asked us for anything. They seem to be happy with our relationship. They're probably cheering us on hoping the Ridgeline continues to sell well, which means greater volumes for them.
Ward's: When you evaluate your purchasing agents, how do you know when they're doing a good job? How do you award bonuses?
Jutte: We're a team-based company; we award bonuses based on the team. We do have individual performance reviews. Our business goals are tied to those individual performance things. You're not going to see across the board on people's personal goals, things like reducing the cost of supplier goods coming in, because its not fair across the board. We have to look at every situation uniquely. You've got the company-level bonus, and you've got individual components that go into their base pay percentages.
Ward's: If there's a recall for a particular component, could the buyer who's involved with that purchase be held accountable?
Jutte: Well, that buyer by him or herself has very little influence on that because there's a whole team that qualified that process from the design to preparation to quality-point confirmations all the way through mass production. What's most important is we understand what actually happened. If we were going after somebody's head, (then) I guarantee you every time you're going to miss the root cause in going through the “why-why” analysis. So at Honda we don't go looking for people's heads. We go looking for the root cause of the problem.
Ward's: How many buyers do you have for North America?
Jutte: In this office (in Marysville, OH) we have around 200 that are doing procuring of parts and then about 1,000 purchasing-related people in North America. Our purchasing team in North America takes care of quality, cost, delivery and logistics – everything it takes to get that product sourced, qualified and quality-readied for mass production.
You have quality engineers, you've got daily ordering members, you've got the people at the plant and cost people here that work with R&D. And you can tell Tony Brown (Ford vice president-global purchasing) that I've been there, I've seen it. There's a whole bunch of people there doing that kind of work, and they're working with the R&D guys with exclusive models that are only made in North America and Japan's not involved with it!
Ward's: Tony thinks that, for an apples-to-apples comparison, we need to really talk to the folks in Japan about the real decision-making that gets made with regards to global purchasing for Honda. How independent are you from the Japanese management?
Jutte: It's a funny thing. People talk about this group or that group and which is independent from that. We're one team stretched around the globe, and the power comes from our competence to communicate well on a global basis. It's not how proud we can be and how much we cannot talk to somebody else and say “we're going to go do this ourselves.” Because there could be something learned from every single person that you can talk to inside of this company.
We have a product that's getting ready to launch in a few years globally, and our team locally – because the (sales) volume is here in North America – is taking the lead on sourcing decisions for that global program. They're collaborating with Japan and other regions, but everyone in the company understands because the volume is in North America, that whatever is good for North America is probably good for Honda globally. This team will have to communicate globally to be able to make the right decisions. And it's not just their decisions – it'll be a team decision. They're leading the investigation of how it's done.
Ward's: So it's not dictated from Japan?
Jutte: Absolutely not. But at the same time we have a responsibility to listen to Japan – they have ideas. Thailand has ideas. China has ideas. The U.K. has ideas. And it's all of those ideas that come together that make Honda collectively better than any individual country or any individual in the company.
That's why I'm proud to work for this company because we could sit in a room, myself included, and talk to the person that just got hired last week who will have a completely different point of view than myself, but maybe the best idea ever.
Ward's: Last year when we did a walk-around on the Acura TL, you noticed a gap in the interior along the glovebox line. You said you were going to investigate. Did you ever find out what happened, why the gap seems to grow a little bit?
Jutte: Working with the supplier and in-house, we have made some adjustments to that design.
Ward's: Are there any other suppliers to the Ridgeline you'd like to highlight?
Jutte: Yes, Tigerpoly (Mfg. Inc. of Grove City, OH) makes part of the intake (manifold system). They were a triple award winner for Honda this year. They won quality, delivery and productivity improvements, and we only have one triple award winner.
Through their own initiative and lean activity, they had an assembly line where they took out over 30% of their manpower and reduced scrap by 50% and had all kinds of huge impacts to their business. And the characteristics of their business are really taking them to the next level. They still kept their profitability.
Ward's:has reorganized, giving 24 facilities back to Ford. Has the reorganization changed your perspective about Visteon as a supplier?
Jutte: It's really up to them.has brought some very good ideas to the table, and the merit of those ideas have won them business. And at the time we're evaluating them as a supplier; we have to look at all different aspects of the company. Certainly due to many different pressures to them they have this condition. But the output from their facilities day-to-day to us, and their ability to provide ideas for future models is still sound. We're not having any issues or concerns with that. Their financial conditions are not having an impact on our normal business relationship.
Ward's: Are you likely to source future business to Visteon?
Jutte: Oh yes, if they can meet all the targets.