Tag: Honda

OM in the News: The Global Supply Chain Is a Mess

Supply chain woes mounted world-wide for makers of everything from cars and clothing to home siding and medical needle containers, reports The Wall Street Journal (March 18, 2021). The extreme Texas weather and port backlogs compounded problems for manufacturers already beset by pandemic disruptions.

Toyota and Honda were the latest multinationals to chime in about setbacks, with the two auto makers planning to halt production at plants in North America. Toyota cited a shortage of petrochemicals, manufacturing of which has been hobbled by last month’s Texas freeze. Honda pointed to a combination of port issues, the semiconductor shortage, pandemic-related problems and the crippling U.S. weather. Samsung, one of the world’s largest smartphone and chip makers, was just forced to idle two chip factories in Austin, Texas, representing 28% of Samsung’s total output.

ships in port of la

The disruptions underscore how several forces are coming together to squeeze the world’s supply chains, from the pandemic-driven rise in consumer demand for tech goods to a backlog of imports at clogged California ports to U.S. factory outages caused by weather woes. They are creating cost increases and delays for numerous industries. The disruptions, which come as the U.S. and other economies are beginning to lurch toward normalcy, show how messy the reopening of business is proving to be a year after pandemic’s onset, and how vulnerable supply chains remain.

Last month’s freeze in Texas was the latest plank on the pile. The state is home to the world’s largest petrochemical complex, which turns oil and gas and its byproducts into plastics. The February freeze triggered mass blackouts that shuttered plants, many of which remain offline.

Meanwhile, the California ports of Los Angeles and Long Beach (shown in the photo), which together handle more than a third of U.S. container imports, remain inundated from an inventory restocking drive that began late last year and has picked up steam in 2021. Lengthy backlogs that at one point left some 40 vessels anchored offshore waiting for dock space. 

Classroom discussion questions:

  1. What are the major issues confronting global supply chains?
  2. What options do companies have when dealing with multi-week backups at U.S. ports?

OM in the News: GM and Honda Now in Strategic Alliance

In Chapter 5, Design of Goods and Services, we note that as the speed of new products and their technological sophistication increases, so do risks.  One way to mitigate this risk is via alliances (page 175). This is exactly  what GM and Honda are doing as they invest billions in an “automotive alliance” in the North American market, including plans to co-develop a range of vehicles to be individually branded by each partner.

GM and Honda plan to share vehicle platforms, including both electric and internal combustion propulsion systems. Earlier this year they agreed to jointly develop two EVs to be branded by Honda, based on the General Motors’ EV platform and powered by its Ultium battery technology.

The two automakers have been partners in selected projects over more than 20 years, including their recent collaboration fuel cell and battery technologies and production, and the Cruise Origin autonomous vehicle.  Beyond the new vehicle technologies, GM and Honda will work to coordinate materials purchasing, logistics services, and localization activities, to create cost efficiencies by leveraging respective scale, insights, and best practices, reports American Machinist (Sept. 3, 2020). And, the two organizations will explore combining R&D related to advanced technology areas, including electrical architecture, advanced driver assist systems, infotainment, connectivity and vehicle-to-everything communication.

“Combining the strengths of each company, and by carefully determining what we will do on our own and what we will do in collaboration, we will strive to build a win-win relationship to create new value for our customers,” said Honda’s VP.

Classroom discussion questions:

  1. What is the definition of an ‘alliance’?
  2. What are the risks to GM and Honda when they establish such alliances?

OM in the News: Honda to Invest $2.75 Billion in GM’s Self-Driving Cars

Honda’s investment will give the auto maker a 5.7% stake in GM Cruise.

Honda is investing $2.75 billion in GM’s self-driving car unit, for the joint development of a mass-produced fully autonomous car, writes The Wall Street Journal (Oct. 7, 2018). Auto makers and technology giants have been scrambling to plant stakes in a transportation landscape that is swiftly being reshaped by technology. Honda will work with GM Cruise LLC to develop a driverless car from the ground up that can be manufactured in high volumes and deployed globally. (GM set up Cruise as a separate business unit to draw in investors who don’t want exposure to the cyclical, low-margin business of manufacturing cars).

Honda’s decision to invest in GM’s self-driving arm reflects a culture change under way at the Japanese car maker, which long prided itself on its engineering prowess, shunning technologies developed by outside companies. One industry analyst said he expects only a handful of “winners” to emerge from the race to commercialize driverless vehicles. That prospect and the large capital outlays required to develop the technology could lead to more collaboration among automotive competitors.

Car companies have been teaming up with tech firms and suppliers to develop driverless technology. GM’s pact with Honda is a further sign that traditional auto makers will look to join forces with one another as they try to fend off Waymo and others vying to lead in a technology that could upend the transportation sector.

Fiat Chrysler has joined a BMW-led consortium to develop self-driving car technology with the aim of producing fully automated vehicles by 2021. BMW launched the partnership with Intel and Israeli car-camera software provider Mobileye. Toyota just announced it would invest $500 million in Uber to work jointly on autonomous vehicles. Uber will integrate its self-driving technology into Toyota minivans for use in Uber’s ride-hailing network.

Classroom questions:

  1. Name other companies that are forming “alliances” ( a topic in Chapter 5).
  2. Why are such alliances useful in designing goods and services?

OM in the News: Honda Learns to Outsource

The Honda Civic production line at a factory in Wuhan, China

Honda’s decision to go shopping points to a radical culture change at one of Japan’s proudest companies, where founder Soichiro Honda in the 1960s said, “We refuse to depend on anyone else.” The struggle at the entrepreneurial success story cuts deep into Japan’s sense of itself as a global leader in technology, writes The Wall Street Journal (Aug.6, 2018). Honda once used staff technicians to design new technologies ranging from engines to the shape of the suspension arms. Today, Honda believes rapid shifts in technology mean it can no longer afford to keep pace working solely on its own.

Car makers around the world are under stress from the huge investments needed to develop new technologies used in electric vehicles and autonomous driving. To trim costs, most are leaning on megasuppliers such as Bosch, Continental AG and Denso, as well as smaller companies with cutting-edge technology such as Intel’s Israeli subsidiary Mobileye. For Honda, whose official name translates as Honda Technical Research Industry, the shift to outsourcing is forcing it to rethink its identity as a creator of unique auto technologies. Some of its most famous products include a navigation system that pre-dated civilian use of GPS, and the CVCC engine, which used less fuel and cut emissions. At the time of the engine’s unveiling in 1972, Honda’s head of research, trumpeted: “We at Honda did everything on our own.”

But in a demonstration for journalists last summer, Honda’s self-driving prototype rolled through a stop sign without halting. Honda said the vehicle was an early prototype and that its performance is now much improved as a result of collaboration with SenseTime. Honda’s eventual self-driving system will likely have only a fraction of its software written by Honda engineers. “We haven’t changed. What changed is that it is inefficient for Honda to do everything ourselves,” says a company exec.

Classroom discussion questions:

  1. What was the advantage of doing “everything on our own”?
  2. What are the advantages of outsourcing?

OM in the News: Honda’s Newest Product Flies

Mounting the engines over the top of the wings reduces the drag in flight
Mounting the engines over the top of the wings reduces the drag in flight

“Honda is finally getting its wings,” writes The Wall Street Journal (May 18, 2015). Some new products, as we discuss in Chapter 5, go from inception to market in months, and some in years.  But for Honda, it involved 3 decades of planning and development to deliver one of its most unusual innovations: an ultrafast business jet that carries its engines above its wings. The $4.5 million 7-seat HondaJet is set for delivery to customers mid-2015. For Michimasa Fujino, the 54-year-old CEO of Honda Aircraft, it is the culmination of a decades long fight to make a Honda aircraft in the face of skeptical executives, technical delays and the global recession. His influence touches every aspect of the design, from its curves to the manufacturing process. “This airplane is my art piece,” he states.

The jet gives Honda—which also makes robots, boat motors, and lawn mowers—entree into a new market. But no modern car company has successfully made the transition to building aircraft. Honda is betting that technological advances will trigger new demand from buyers with its lightweight body made of carbon-fiber composites–providing 17% better fuel efficiency than competitors while having the highest speed in its class: 480 miles per hour.

Fujino’s first decade produced a pair of designs, but the breakthrough came in 1996 when he sketched the basics of the plane’s current design on the back of a wall calendar. Inspired by principles in a 1930s aerodynamics textbook, the design mounted jet engines atop the wings to boost cabin space and cut noise. In 1997, Fujino presented the business case to the board with the sketch in hand, receiving approval for a flying prototype. It would take 3 years of persuasion, using simulations and wind tunnels to prove his point. He and 40 employees started building the prototype in 2000 in a hangar in Greensboro, N.C. The prototype flew successfully in 2003. Today, HondaJet’s workforce has grown to 1,300 at its 133-acre N.C. campus, providing easy access to the U.S. and Europe, 80% of its estimated market.

Classroom discussion questions:

1. Why did product development take so long?

2. Provide a brief SWOT analysis of the new product.

OM in the News: Honda’s Rigid Parts Sourcing Leads to Massive Recalls

About 12 million cars have been recalled for defective airbags over the past 6 years and at least 2 people have died
About 12 million cars have been recalled for defective airbags over the past 6 years and at least 2 people have died

Honda is re-evaluating its relationship with Japanese air-bag maker Takata, which is behind Honda’s biggest series of safety recalls, reports The Wall Street Journal (Oct.2, 2014). The moves follow the discovery that defective air bags from Takata—some dating to the early 2000s—could send metal pieces into a car’s cabin, injuring drivers and passengers. Car makers are only now considering a change in how and where they buy their air bags, highlighting how entrenched and inflexible some automotive supply chains are, with a few companies supplying large swaths of the industry. Honda declined to disclose specific information about any of its supplier relationships, saying that such information is proprietary.

At issue is the inflater component. Takata’s inflater uses a different propellant than most of its rivals, which is cheaper but can be particularly volatile.  Takata said it makes the safest and most environmentally friendly products available. Honda is now ordering some of its inflaters from Daicel Corp. instead of Takata. But switching parts suppliers in the middle of an automotive production run is difficult and costly.

Honda also holds a 1.2% stake in Takata, which now has about 36,000 employees and 46 factories in 17 countries. To serve its far-flung customers, many of whom had shifted to JIT parts delivery to limit inventories, Takata kept plants in locations ranging from Malaysia to Morocco to Uruguay. It struggled to integrate those far-flung operations, and communication between the Japanese, European and North American divisions was poor.

Classroom discussion questions:

1. Why is it hard to switch airbag (or other auto parts) suppliers?

2. What tier suppliers are the inflater manufacturers?

 

OM in the News: Honda Revs Up Plants in the US

When discussing global OM issues in Ch.2, the news that Honda is shifting a major chunk of its manufacturing to the US over the next 2 years is noteworthy. The Wall Street Journal (Dec. 21, 2011) reports that the 63-year-old company is accelerating its move away from Japan after two huge challenges: natural disasters and the yen’s gain of 40% to the dollar since 2007.  (The yen was 78 to the dollar this week, compared to 120 a few years ago). Honda plans to  grow to 2 million cars  in N. America, up from 1.29 million last year. This is to be done by building a new factory in Celaya, Mexico and expanding all 7 existing US plants.

With the expansion, Honda will export 200,000 to 300,000 vehicles a year from N. America, a tenfold increase, while reducing exports from its Japanese plants by 50%.  Because of the strong yen, “It is virtually impossible to make money on exporting vehicles from Japan in the short and medium term”, says the president of American Honda. For the US, the move means good news: thousands of new auto-related jobs and a boost for US suppliers that make components for Honda. The Greensburg, Indiana, plant alone will go from 100,000 to 200,000 Civics per year and add 1,000 jobs.

“It’s almost an economic necessity that they co-locate exports outside of Japan”, adds an industry consultant. “You can expect others to follow”. Today,  37% of Honda’s global production is in N. America: this will grow to 50% after expansion.

Toyota, likewise, has begun making its Corolla in Mississippi and is looking to expand its Baja, Mexico factory. Both firms saw earnings drop 50% this quarter.

Discussion questions:

1. Why are many foreign auto makers now expanding in the US?

2. What is the risk to Honda of transferring a large part of capacity offshore?

OM in the News: When Supply Chains Break

The new Fortune (Dec.26,2011) article “When Supply Chains Break”  (pp.29-32) ends with the following line:  “The real cost advantage may not go to the manufacturer with the nimblest supply chain but to the company with the most robust one”.  The opening line is:  “Manufacturers have spent years building low-cost global supply chains. Natural disasters are showing just how fragile those networks really are”. Sure enough, with hundreds of Hondas in the flooded plant in Thailand just floating in 15 feet of water, it is surreal to think of how we teach the lean supply chain concept.

Invented by Toyota, and perfected in the era of globalization, lean supply chains completely decentralized manufacturing. Manufacturers developed a network of suppliers whose components arrived at assembly plants at the moment they were needed. There was  no pesky inventory to manage, suppliers kept costs down by locating near cheap labor, and consumers enjoyed lower prices.

But the tsunami, earthquake, and flooding in the past year (costing  a total of  $240 billion in Japan and Thailand) have resulted in economic disruptions felt well beyond Asia. Seagate’s CEO predicts its shipments of hard drives (it has 2 plants in Thailand) won’t be normal until 2013. While the computer industry needs 175 million hard drives a year, suppliers can now put out only 125 million, a shortfall of 29%. Apple and HP have already told investors that their earnings will suffer from the floods.

It is not surprising then that manufacturers are starting to rethink their global infrastructures. “The question is”, says one industry expert, ” has the quest for lowest-cost production and hyper-lean supply chains overridden and exposed vulnerability to significant business risk?” For Seagate and many others, the answer is a resounding “yes”. Carlos Ghosn, Nissan’s CEO, said just last month: “”There is going to be another crisis”.

Discussion questions:

1. What should manufacturers do to prepare for the next crisis?

2. What other firms have been impacted, and how, by these disasters?