Honda Beefs Up Midwest Purchasing

The automotive parts supply chain in North America is changing like never before as domestic auto makers attempt to source more parts overseas and the foreign transplants seek more parts within the region. Meanwhile, suppliers – many of them in distress – remain crucial to the success of new vehicles being launched. This is the third installment of a Ward’s 6-part series stemming from interviews with the purchasing departments of Nissan, Ford, Honda, GM, Toyota and Chrysler.

Special Report

Supply Lines: Purchasing Chiefs Speak Out

RAYMOND, OH – All you have to do is check in at the front desk at Honda of America Mfg. Inc.’s North American Purchasing Office here, and you know the idea of continuous improvement gets more than lip service.

The peaceful setting amid Ohio farm country northwest of Columbus belies an almost fanatical obsession with the concept.

Instead of signing in and taking a badge, the receptionist directs visitors to a computer where they input their e-mail address and company name. Then it takes their picture and prints out a photo ID with bar-coded information.

Next time, the visitor inputs his e-mail address, and the system prints out a new photo stick-on ID.

Tomko: Few Honda suppliers “unhealthy at this point.”

Nothing is wasted here. Instead of being thrown out, used badges are molded like Play Dough into artwork. A model of Honda’s Asimo humanoid robot stands on the reception desk; a scale model of Honda’s new personal jet is under construction.

Jeff Tomko, assistant vice president-purchasing and North American cost planning for HAM, happily swings open doors leading from the lobby to reveal several hundred purchasing agents crowded into a bullpen of open cubicles.

They work almost elbow-to-elbow with HAM’s purchasing chiefs who, in typical Honda fashion, have equally modest open-area workstations.

They all are furiously purchasing what soon will amount to $17.5 billion worth of parts this year for Honda vehicles built in North America. That’s a $1.5 billion increase over last year, thanks to a new $550 million, 200,000-unit annual-capacity assembly plant being built in Greensburg, IN, and scheduled to start producing Civic sedans in fall 2008.

HAM’s budget may look small compared with General Motors Corp.’s $61 billion of purchases in North America or Ford Motor Co.’s $90 billion globally, but unlike them, Honda rapidly is increasing production capacity and purchases in North America.

Last year, American Honda Motor Co. Inc. achieved a 77/23 North American-built/import ratio despite an increase in sales of imported cars and light trucks. Even so, Honda Motor Co. Ltd. CEO Takeo Fukui said earlier this year he was not satisfied and wants at least 80% of the vehicles Honda sells in the U.S. to be built in North America, if not more.

Fukui then went on to criticize rival Toyota Motor Sales U.S.A. Inc. for having only a 53.6%/46.4% domestic/import mix.

Honda also is considered by suppliers to be one of the most desirable auto makers to work with, according to the annual Planning Perspectives Inc. study of OEM/supplier working relations.

When HAM registered a significant drop on a question regarding supplier trust of OEMs compared with previous years in the 2006 Planning Perspectives study, company officials vowed to improve.

Honda did just that, scoring a 3.9 on a 5-point scale, just behind Toyota’s 4.0 rating and far ahead of Detroit’s Big Three.

Tomko declines to be specific about exactly what went wrong or how the issue with suppliers was mended, except to say it related mostly to communications issues and perhaps some glitches in the auto maker’s recent heavy new product launch schedule that included the Acura RDX cross/utility vehicle in Marysville, OH, the Honda CR-V at East Liberty, OH, and a completely redesigned Acura MDX in Alliston, ON, Canada.

While Honda is a very global auto maker, with highly flexible vehicle architectures and factories, Tomko predicts the launch of the new Civic plant in Greensburg will not cause major upheavals in HAM’s existing U.S. supply chain.

The Greensburg plant is situated deliberately in the midst of the auto maker’s current supply base, and near major arteries.

There will be no big supplier parks surrounding the plant or a lot of components pouring in from outside North America.

“We established in 1987 a 5-part strategy to be self-reliant in this region,” Tomko says. “Along with that strategy, we determined a high level of local content would support that, greater than 70%. Since then we have significantly exceeded 70% local content and expanded our North American supply base.”

Instead, the $1.5 billion in additional purchases mostly will be spread among Honda’s current suppliers in Ohio, Michigan, Indiana and Kentucky. They will expand their facilities to accommodate the additional business, Tomko says.

“There will be very few new supplier facilities created for the new Indiana plant,” Tomko emphasizes.

Honda is attempting to globally source standardized components when it makes sense. For instance, on the new Honda CR-V CUV, Tomko points out the seatbelts are sourced from Autoliv Inc. in China because they can be used cost effectively in versions of the CR-V built in all the regions of the world where it is sold.

Honda Purchasing – By The Numbers

British supplier TI Automotive won the plastic fuel tank on the new CR-V by impressing Honda with parts it has been supplying on previous versions of the CR-V in Europe, even though it is supplying HAM from a plant in the U.S.

Fleetwood Metal Stampings in Windsor, ON, Canada, won more business because the CR-V has a high percentage of high-strength steel parts, and it has expertise in stamping such parts.

Despite all the turmoil in the supply chain, Tomko says HAM has relatively strong and stable parts producers.

“We have some suppliers that are a little unhealthy at this point,” he admits, but says they are relatively few in number.

“For those suppliers that are struggling, I think our key is trying to understand what their struggles are and partner with them to make any improvements we can to help them recover.”

And where does Honda stand on the on-again off-again interest Detroit auto makers seem to have in outsourcing entire interiors to suppliers?

“We’ll never say never,” Tomko says diplomatically, “but at this point we don’t see that as a viable option.”

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