Honda is aiming to reduce the purchasing costs for its three top-selling global models by about 30% over the next four years through a new common platform strategy that includes sharing parts. As reported in the Nikkei business news service last weekend, the move follows the announcement that the Japanese carmaker is striving to increase global sales by 50% by 2016 to 6m.
According to the report Honda plans to use a common platform for the generation of the Civic, Accord and CR-V, which will make up around 40% of its global sales by 2016. With an average 30,000 parts used in each model, Honda wants them to share between 40-50% in value terms. For the Civic and CR-V, which are based on the same platform, that figure currently stands at about 20%.
Parts procurement accounts for 80% of total manufacturing costs at Honda.
The Nikkei also reported that Honda is planning to step up purchases from major part suppliers that can supply in emerging nations and other regions of the world, citing Robert Bosch and Denso as those companies that will be supplying 40% of Honda parts by 2020, up from 16% in 2011.
Honda wants to establish a healthier competitive footing in emerging markets to challenge VW and Hyundai Motor that are already benefitting from shared parts strategies.
In addition, the carmaker is reported to be changing its design and production practice. This will mean shifting component design and assembly from in-house out to the supplier. Specifications for components such as air conditioners will now be fed out to the suppliers who will design, develop and assemble them for Honda.
This latest development raises questions about the supply of more parts from fewer suppliers, a situation that contributed to serious shortages for carmakers when the automotive supply chain was hit by the Japanese earthquake and tsunami in March 2011, as well as the Thai floods later that year in October. The latter disaster was one that hit Honda particularly badly. Honda assembly was suspended in the country and its supply chain impeded by component makers unable to maintain production. Nearly 200 supplier companies at Rojana park in the badly affected Ayutthaya region had to close down (read more here), for example.
Tier one suppliers were encouraged to build a more diverse tier two and three supply base to minimise the risk of supply disruption to unique providers but the extent to the progress being made here is hard to gauge. Consolidating more parts across fewer suppliers could lead to further supply risks in the event of a disruption, however the cost advantages could be seen as outweighing such risks.
But there are also questions about quality.
Giving more work to the suppliers is not new according to Transport Intelligence analyst Thomas Cullen, “the question is, how will Honda ensure its quality is not affected,” he said, noting the existing rise in the level of standardisation including across everything from electric steering, bi-xenon lights, and direct injection technology, which are all products that Bosch, Delphi and the like supply.
“Honda has always sought to develop key components in-house, not least due to its commitment to quality and reliability,” said Cullen. “Ensuring this with suppliers will be vital for Honda. It’s an important change.”
The impact on the supply base and the logistics network supporting it of Honda’s latest announcement remains unclear, as the OEM has made no comment on the likely consequences for the inbound supply chain and its suppliers. Shifting to more global suppliers that are able to produce in emerging markets could reduce logistics and customs costs as well as lower currency risks. At the same time, some supplies might be consolidated in one region and supply other production locations building the same model or platform. In such cases, several carmakers have noted an increase in logistics costs, including General Motors (see the cover story in the current issue of Automotive Logistics magazine).
What the recent announcement by Honda also raises is the issue of Honda’s competitive position when it comes to the existing commonality of its parts in comparison with a company such as VW, which releases the Golf in different forms such as the Audi A3, and its Seat and Skoda models.
“I wouldn’t like to say Honda has “fallen behind” but it is reasonable to contrast the number of different model types at VW with those at Honda, added Cullen.