How does Mr. Honda’s history with suppliers relate to Honda’s current supply management strategy? Honda’s current supply management strategy is consistent with Mr. Honda’s history. There three factors about Honda’s supply management strategy, focus on local market, emphasis on competition and reliable suppliers. According to the Honda’s export strategy of “Honda and U.S. – Japan Automotive Trade”(1997), it is clearly that Honda focuses on regional markets which contributes to developing more sales, strong research and better development. And their strategy of manufacturing the products where or near to where they are sold is the result of their being local strategy. Additionally, focus on local market benefits not only Honda but also the local government. Taking the US market as an example, on one hand, “Honda’s commitment to global trade and the positive benefits that result for U.S. jobs, suppliers, consumers and exports.”
On the other hand, when the government benefits from Honda, it is easier for Honda to develop in the future. The other one is that Honda always emphasizes the competition of globalization. And during the intense competition, finding reliable suppliers to ensure and advance the quality of production is very important. Being globalization is the corollary goal if one company wants to make more benefit. And reliable suppliers are of great significance for company. This is the foundation of being on time as well as having good quality. Furthermore, Honda’s suppliers are able to be involved in the development process to give suggestion and have negotiation with Honda. In this way, Honda has access to know how to make it better and faster. Why is purchasing so important at Honda?
Purchasing is important to Honda because of its strategy to be globalization. As Honda is a transnational corporation, it is very important to know the different policy, culture and environment in different local places in order to producing saving, managing contracts effectively and maintaining productive supplier relationships. Effective supply chain management depends on material availability, purchase volume, product cost and types of materials. As there thousands of parts in a car, sometimes materials should be bought from all over the world to reduce cost. Purchasing ensures the lowest price with good quality. And with communication as well as negotiation to the suppliers, it is possible to make all the products to be produced on time with lower cost which is very important. Additionally, purchasing takes what kind of contract is the best into consideration which contributes to managing contracts effectively. Due to the different environment in every location, an appropriate type of contract benefits Honda and suppliers at the same time. Furthermore, as mentioned above, Honda pays a lot attention to the relationship with suppliers.
One of the important part of purchasing is negotiating with the suppliers. With good negotiation and communication, it not only increases the chance of getting better deal but also contributes to establishing positive relationship with suppliers. How does purchasing rank in the corporate structure at Honda? Purchasing ranks highly in the corporate structure at Honda. It is in charge of local purchasing which decides the local suppliers as well as the global source. Besides, it has the option of adding a second source of supply. How is Honda organized globally? How does this help/hinder the purchasing function at Honda? Honda has lead automotive exporter which increase the buying and selling power for Honda. Honda focus on the localization as well as globalization which neutralizes the effect of currency rate. However, it also causes some problems such as at the beginning it is hard to coordinate between the local and the global. But this problem has been solved when the international purchasing department strengthen its macro-control of the local and global purchasing.
Honda is sensitive to international requirements which means it takes advantages as well as create opportunities with local government. Since 1986 the MOSS came out, Honda created thousands of job opportunities in US and in turn it gets a lot benefit. What are the key elements of Honda’s supplier evaluation policy? How does it differ from others (e.g. the Big Three)? Suppliers are able to be involved in the product development to some degree. Different from others which control everything during purchasing and the suppliers are just responsible for supplying products as what is in the contract, Honda’s suppliers are able to offer advice about enhancing the efficiency which facilitate the cooperation as well as the products. In other words, Honda and its suppliers are mutually-beneficial cooperation rather than Honda just relies on suppliers. Continuous development and responsiveness of suppliers at the early age of product development process is critically important. “Honda tries to encourage suppliers’ suggestions early before finalizing drawings, particularly in the area of cost reduction and quality improvement.” Honda always tries to maintain relationship with suppliers. It is hard to communicate effectively in Honda’s four trade zone but Honda always pays attention to it. As Mr. Morita says, “Honda places value on maintaining relationships, so we do not enter into them lightly.”
Different from companies which focus on the immediate benefit of low cost rather than long-term benefits of maintaining relationship, Honda values suppliers and tries best to maintain good relationship with suppliers which turns out to be a very economical strategy. Because changing suppliers or having problems with current suppliers always takes a lot of time and money of fix it. What is Honda’s policy on new product development and supplier involvement? How does it differ from other automotive companies? Honda’s policy on new product development and supplier involvement includes two pars: Pacific Automotive Cooperative since 1986 and Re-assigned Pacific Automotive Cooperative since 1995. The former one was signed by Japanese and American government which required companies to report all of their import and localization volumes. The latter one consisted of 32 shareholders from joint venture composed of Japanese automakers which was established to meet political objective for production in North America.
Both of the policies emphasize on the involvement and cooperation of suppliers. Different from other automotive companies, suppliers of Honda have access to have knowledge of product development process and to offer suggestion which enhance the relationship between Honda and suppliers as well as promote the production efficiency. Honda’s culture have always emphasized globalization. Honda cultivated an international background at a very early age resulting in getting along with suppliers well. Conversely, Nissan and Toyota primarily exported vehicles, and did not develop this international culture. Does Honda support local sourcing from domestic suppliers? What are the advantages / disadvantages of this approach? Yes, Honda strongly supports local sourcing from domestic suppliers. Advantages:
Firstly, it is easier for Honda to create and develop domestic market with domestic suppliers which understand customer culture and market better than Honda itself. Secondly, domestic suppliers decrease the cost of time and money to distribute and produce. Thirdly, as there may be several domestic suppliers, so Honda has more options to choose the best one. And additionally,, domestic suppliers lower the risk of discontinuousness. Disadvantages:
At the beginning of purchasing, domestic suppliers may be lacking in specific raw materials or components. And furthermore, how to adjust the domestic suppliers with global market is very important. Honda’s policy and commit to long-term relationships has been criticized as being “too loyal”, and Honda will go to “ridiculous lengths” to maintain a supplier relationship before severing ties. What do you think about these criticisms? Although Honda’s policy is criticized, in my opinion, it is still of great significance. When choosing suppliers, quality of products they supply compared with the cost and delivery fee are the most important factors. If the suppliers were able to satisfy these requirements, there is no need to change suppliers. Additionally, Honda keeps increasing the relationship with suppliers by involving them into the product development process, which benefits both Honda and suppliers. Stable and long-term relationship doesn’t equal ridiculous lengths. With efforts, it is one way to increase the quality of suppliers.